US GDP growth forecast downgraded due to rising tariffs

Goldman Sachs analysts are concerned about the impact of President Trump's tariffs on US trade policies. They recently lowered the US GDP growth forecast for 2025 from 2.4% to 1.7%. This marks the first time in over two years that they have downgraded their expectations below the market consensus. The analysts predict that the average US tariff rate will increase by 10 percentage points this year, which is five times larger than during Trump's first term. This change is part of a broader trend they describe as a "fading US exceptionalism." In the markets, the S&P 500 index has shown signs of decline, entering correction territory. In response, Goldman cut its year-end 2025 target for the index from 6500 to 6200. They also reduced their earnings growth forecast for 2025 from 9% to 7% due to these changes. Conversely, the outlook for European markets has improved. Analysts expect European equities to outperform due to a valuation gap with US stocks and higher defense spending in Europe. They raised their earnings growth forecasts for European indices for the coming years. Additionally, they see strong performance in Chinese and emerging market equities as well. However, they warn that the current US market correction could pose challenges for these regions, as regional equities often decline in such periods. Overall, they emphasize the importance of diversifying investments away from the US amidst the changing economic landscape driven by increasing tariffs and trade policies.