Before Donald Trump won the US election back in November, the chances of his win resulting in a US recession – or a ‘Trumpcession’, as the prospect is now being dubbed – seemed miniscule.
In fact, the opposite was the case. Whatever critics of the former president said about him, the general perception was that the former Apprentice host and business magnate had economic matters under control.
That perception is changing fast. Trump’s trade war seemingly risks dragging the US economy into negative territory.
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The S&P 500 – along with other major US indices – is entering freefall territory as global investors brace for a potential US recession. The flagship index fell 2.7% on 10 March as these fears gathered pace.
“Monday’s market rout was a stark reminder that political uncertainty can shake investor confidence in an instant,” says Kate Leaman, chief market analyst at AvaTrade. “The Dow plunged by more than 2%, the S&P 500 dropped 2.7%, and the Nasdaq tumbled a staggering 4% – its worst single-day drop since 2022.”
These falls were followed by further drops on 11 March, though the following sessions saw a slight recovery as US consumer price inflation came in lower than expected.
Big tech stocks including the Magnificent Seven have been among the worst hit in the selloff.
“US markets have finally faced a harsh reality that the Trump administration's investor-friendly narrative was nothing more than a fantasy,” says Matt Britzman, senior equity analyst, Hargreaves Lansdown. “They're now pricing in a very real chance that the president's carrot and stick approach to global politics will push the US into a recession.”
Britzman’s comments come hot on the heels of Goldman Sachs economists saying that, in their view, the chances of a US recession this year had increased from 15% to 20%. J. P. Morgan’s chief global economist Bruce Kasman has since stated that he believes the chances of a US recession are as high as 40%.
Higher tariffs and inflation levels as well as falling employment and productivity are the key factors behind the change.
The GDPNow model, a statistical tool used by the Federal Reserve Bank of Atlanta to forecast US economic output, now predicts a 2.4% contraction in the US economy during the first quarter of 2025.
For his part, Trump doesn’t seem to be doing much to rule out the chances of a US recession. He refused to downplay the chances of one on 10 March, telling Fox News that “I hate to predict things like that. There is a period of transition because what we're doing is very big, we're bringing wealth back to America”.
Comments like these, as well as his rhetoric around tariffs, “has left investors uneasy”, says Leaman.
How likely is it that the US economy will enter recession, and what would a Trumpcession mean for your finances?
What is a recession?
A recession is a substantial downturn in a country’s economic activity.
As a rule of thumb, most economists define a recession as two consecutive quarters of negative gross domestic product (GDP) growth, though this isn’t necessarily the only metric used.
The length of a recession is usually measured from the quarter at which GDP started to contract until the one in which it returned to expansion.
Some famous periods of recession in the US are the Great Depression during the 1920s, the Great Financial Crisis that began in 2009, and the recession that followed the bursting of the dotcom bubble.
A stockbroker tries to sell his car during the Great Depression, one of the most severe recessions in US history.
While a recession is usually defined in terms of a particular economy, they often take place on a global scale thanks to the interconnectedness of modern global trade.
So a US recession wouldn’t just impact the US; it could have significant knock-on effects for your finances given the weight that the US carries in the global economy.
What would a US recession mean for your money?
For a start, a contraction in the US stock market – which is already happening merely off the fears that the US could enter a recession – would have a major impact on your savings and investments, given that most global trackers are weighted towards US companies (of the 20 largest companies in the world by market capitalisation, 17 are based in the US).
Beyond that, it’s hard to say exactly what impact a US recession would have on finances for people living in the UK.
Assuming that tariffs were driving the contraction, though, there would likely be a rise in global inflation.
“The biggest impact that the US economy going into a tariff-induced recession might have for UK citizens is to push up global inflation,” says Rob Morgan, chief investment analyst at Charles Stanley.
That in turn could make central banks, including the Bank of England, more reluctant to cut interest rates.
That “would lead to elevated borrowing rates in the UK”, says Morgan. “Things like mortgage rates could stay higher for longer.”
Could the US still avoid a Trumpcession?
There is, though, a strong argument that the US won’t enter a full-blown recession just yet, at least according to the common definition of two consecutive quarters of negative growth.
For one thing, the widely-reported Goldman Sachs outlook still puts the chances of a US recession this year at just one in five. That’s higher than it has been previously, but still far from the most likely outcome. Even Kasman’s stance suggests that a recession is less likely than the chances of one being avoided.
Further, researchers from Capital Economics expect a contraction in US GDP during Q1 – but that the US economy will return to growth the following quarter.
This is largely because the Q1 contraction, they believe, is being driven by an upsurge in imports in order to get ahead of a potential new tariff regime.
“For now we don’t expect the US economy to slide into recession. But stranger things have happened,” writes Paul Ashworth, chief North America economist at Capital Economics.
In particular, Ashworth notes a weakening of consumer confidence in the US over recent months. Consumers, he says, appear to be “pulling in their horns and opting to boost precautionary saving ahead of what they expect to be another damaging episode of high inflation undermining their purchasing power”.
“Investors will be watching for Trump’s next moves on trade and economic policy,” says Leaman. “Clarity could calm markets, while more ambiguity may fuel volatility.
“Right now, it’s all about sentiment – and the mood on Wall Street has turned decisively bearish.”
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