Washington, D.C.: The U.S. economy faces a 40% chance of entering a recession this year, with the risk escalating if trade tensions intensify, according to J.P. Morgan’s chief global economist Bruce Kasman. Speaking to reporters in Singapore, Kasman expressed concerns over the potential for lasting damage to the United States’ global investment appeal if policy uncertainty and economic disruptions continue.
Heightened Concerns Over U.S. Economic Outlook
“Where we stand now is with a heightened concern about the U.S. economy,” Kasman stated, highlighting the market turbulence triggered by investor fears that former President Donald Trump’s import tariffs could slow economic growth. The past week saw U.S. stocks suffer their sharpest selloff in months, reflecting mounting anxiety among investors.
At the beginning of the year, Kasman estimated the U.S. recession risk at 30%, but he has now revised that figure to 40% based on recent economic and policy developments. J.P. Morgan’s baseline forecast still projects 2% GDP growth for 2024, but the outlook could worsen if trade disruptions persist.
Market Volatility and Declining Growth Forecasts
Recent data suggests that concerns over the impact of tariffs and trade restrictions have significantly increased recession risks across North America. According to a Reuters poll, 95% of economists in the U.S., Canada, and Mexico believe that Trump’s trade policies have heightened the chances of an economic downturn.
Investment banks have also begun revising their U.S. GDP growth projections downward:
- Goldman Sachs now forecasts 1.7% GDP growth for 2024
- Morgan Stanley predicts even slower expansion at 1.5%
Kasman warned that if Trump follows through on reciprocal tariffs in April, the probability of a U.S. recession could rise to 50% or higher.
“If we would continue down this road of what would be more disruptive, business-unfriendly policies, I think the risks on that recession front would go up,” he cautioned.
‘Exorbitant Privilege’ Under Threat: Risks to U.S. Financial Standing
Beyond short-term recession fears, Kasman also raised longer-term concerns about the United States’ status as a premier investment destination. He warned that uncertainty surrounding the government’s economic policies, regulatory decisions, and global role could undermine investor confidence in U.S. assets.
“The U.S. seems to have established itself as a place where people can be comfortable about rule of law … comfortable about the integrity of information flow, and they can be comfortable that the government isn’t going to be, in unexpected ways, getting involved in the rules of the game,” he said.
However, he noted that recent government agency cutbacks, shifts in foreign policy, and administrative changes could erode that trust.
Kasman specifically pointed to the Trump administration’s decision to disband advisory committees responsible for data collection, arguing that such moves contribute to rising uncertainty about U.S. policymaking.
The Dollar’s Dominance and Potential Capital Flight Risks
A key part of Kasman’s warning revolves around the “exorbitant privilege” that the U.S. has long enjoyed in global finance. This term refers to America’s ability to finance deficits at lower borrowing costs, attract large capital inflows, and maintain the dollar’s dominance as the world’s reserve currency.
“The term which has been in place for a very long time is that we have ‘exorbitant privilege’. That we end up paying a much lower cost for financing our deficits and debt, we have much greater capital flows and attractiveness of the dollar and assets, because of these things,” Kasman explained.
However, if global investors lose confidence in U.S. governance and economic stability, this privilege could be weakened, leading to higher borrowing costs and reduced foreign investment.
Implications for Global Markets and Investors
Kasman’s analysis underscores the growing fragility in global financial markets, as uncertainties surrounding U.S. trade policies, recession risks, and institutional stability weigh on investor sentiment. While the stock market has already reacted negatively, further economic disruptions could trigger capital flight, increased volatility, and a shift in investment preferences away from the U.S.
As policymakers navigate these economic headwinds, market analysts will closely monitor upcoming trade decisions, fiscal policies, and geopolitical shifts to assess the potential fallout for global growth and financial stability.
