Goldman Sachs outlines the main risks to U.S. economic growth in 2026

Investing.com - Goldman Sachs says that U.S. economic growth is expected to outpace market expectations by 2026, thanks to tax cuts, reduced tariffs, and easing financial conditions.

Get key market insights with InvestingPro

In a research report, analysts including Pierfrancesco Mei forecast that, quarter-over-quarter, U.S. GDP growth will reach 2.5% in 2026, higher than Bloomberg’s general expectation of 2.1%. For the full year, GDP is projected to grow by 2.8%.

Data released last week showed that the U.S. economy slowed to an annualized growth rate of 1.4% in the fourth quarter of last year, after seasonal and inflation adjustments, largely due to the federal government shutdown that ended in November. Comparing total output in 2025 to the previous year, the U.S. economy grew by 2.2%, the slowest pace since 2020.

Economists note that, despite a divergence between strong consumption among high-income groups and weak demand from low-income groups, overall activity remains broadly resilient.

“Our key driver forecast is that the drag from tariff hikes will give way to the boost from tax cuts for businesses and individuals included in the ‘Great and Good Act,’” said Goldman Sachs analyst, referring to the landmark fiscal bill signed by President Donald Trump last year.

“Reduced policy uncertainty and easing financial conditions should also support business investment, which we expect to be the strongest component of GDP in 2026.”

At the time of these comments, the Supreme Court overturned Trump’s use of emergency economic powers to impose so-called “reciprocal” tariffs on several countries. Trump responded by introducing a temporary 10% global tariff and threatened to raise the rate to 15%.

Meanwhile, Federal Reserve policymakers are expected to resume rate cuts later this year after pausing their recent series of cuts in January.

However, Goldman Sachs analysts warn that a potential stock market correction could weigh on consumer spending—the core engine of the U.S. economy. They estimate that a 10% decline in stock prices, if sustained into the second quarter, could reduce GDP by about 0.5 percentage points.

“Our analysis indicates that a significant stock market correction poses the greatest near-term risk,” the analysts said.

They also point out that the impact of artificial intelligence poses a challenge to the labor market, which has shown signs of stability. Rising unemployment could similarly weaken consumer demand.

Goldman Sachs analysts predict that if the higher costs of tariffs imposed by Trump are passed on to consumers, it could also pressure growth, as could rising oil prices due to geopolitical tensions and risks in private lending.

“While any single downside risk listed above wouldn’t necessarily push the economy into recession unless the shock is very large, multiple risks occurring simultaneously—especially a stock sell-off combined with AI-driven labor market displacement and limited productivity gains—could pose a greater growth hurdle,” they wrote.

“In such a scenario, the Fed might adopt a more aggressive rate-cutting stance to offset some of the impacts.”

This article was translated with the assistance of artificial intelligence. For more information, see our Terms of Use.