Goldman Sachs Cuts US Recession Probability to 15% After Iran Deal

Goldman Sachs (NYSE: GS) has lowered its estimate of the probability that the US economy will enter a recession within the next 12 months to 15%, according to a research note released today. The revision follows the recent agreement between the United States and Iran, which the bank sees as a factor in reducing downside risks to the economic outlook.

Recommendation Change

Prior to this adjustment, Goldman Sachs' recession probability estimate was higher, though the bank did not explicitly state the previous figure. The new estimate of 15% reflects a notable improvement in the outlook.

Analyst Rationale

Goldman Sachs' chief economist, Jan Hatzius, attributed the reduction to two main factors:

• The Iran agreement: Reduces geopolitical tensions and the risk of energy supply disruptions, thereby easing inflationary pressures.
• Labor market resilience: Recent employment data has shown unexpected strength, enhancing the economy's ability to absorb shocks.

Context

This adjustment comes as investors await key economic data, including jobs and inflation reports. Other analysts, such as those at Morgan Stanley and JPMorgan, still maintain higher recession probability estimates, indicating a divergence in views on the economy's trajectory.

What to Make of It

Goldman Sachs' reduction in recession probability reflects cautious optimism about the US economy, supported by geopolitical factors and a strong labor market. However, investors should monitor upcoming economic data to assess the sustainability of this improvement.