Goldman Sachs Group Inc said on Sunday that fears of the U.S.-China trade war leading to a recession are increasing and that Goldman no longer expects a trade deal between the world's two largest economies before the 2020 U.S. presidential election.
"We expect tariffs targeting the remaining $300bn of US imports from China to go into effect," the bank said in a note sent to clients.
U.S. President Donald Trump announced on Aug. 1 that he would impose a 10% tariff on a final $300 billion worth of Chinese imports on Sept. 1, prompting China to halt purchases of U.S. agricultural products.
The United States also declared China a currency manipulator. China denies that it has manipulated the yuan for competitive gain.
The year-long trade dispute has revolved around issues such as tariffs, subsidies, technology, intellectual property and cyber security, among others.
Goldman Sachs said it lowered its fourth-quarter U.S. growth forecast by 20 basis points to 1.8% on a larger than expected impact from the developments in the trade tensions.
"Overall, we have increased our estimate of the growth impact of the trade war," the bank said in the note authored by three of its economists, Jan Hatzius, Alec Phillips and David Mericle.
Rising input costs from the supply chain disruption could lead U.S. companies to reduce their domestic activity, the note said. Such "policy uncertainty" may also make companies lower their capex spending, the economists added.
Economies globally are showing signs of acute weakness and the next stage could be a worldwide recession, if Morgan Stanley is to be believed, in nine months from now.
Escalation in trade tension between the two largest economies — US and China — is the chief factor nudging the world economy towards a recession.
Warning signals are also coming via other reliable indicators of recession: the bond yield curve. The yield curve has typically inverted before recession and it is now nearly similar to what was seen ahead of the 2008 financial crises.
Morgan Stanley believes if the trade war further soars via US again raising tariffs on all goods imported from China to 25 per cent, "we would see the global economy entering recession in three quarters".
India, however, is not close to a recession, but is witnessing a crippling slowdown. Some sectors like the automobile industry are dangerously close to recession.
India's economy has declined for three straight quarters and the growth forecast are also not uplifting. Both industrial production and core infrastructure sectors have witnessed a decline.