Goldman Sachs dials back its recession odds on signs the economy is holding up amid the war

Goldman Sachs thinks the odds of a recession have come down.

The Iran war remains unresolved, but the reality is that oil hasn’t gone as high as some forecasters predicted, while the US economy remains on solid footing.

Last week’s jobs report showed that the US added 115,000 jobs in April, significantly above the anticipated 65,000, while the unemployment rate held steady at 4.3%. But the bank said there’s also other data that shows the Iran war has had a relatively modest impact.

Goldman’s chief economist Jan Hatzius said the bank is lowering its recession forecast as a result.

“We have shaved our 12-month US recession probability from 30% to 25% as economic activity has held up well and our financial conditions index has eased back below pre-war levels,” he wrote on Monday.

The economist highlighted a few other recent statistics that he thinks support a lower recession forecast. He noted that while headline GDP growth failed to meet expectations in the first quarter of this year, private domestic sales showed steady growth, rising 2.5%.

The bank’s view comes as some other prominent voices are still sounding the alarm on recession likelihood. Veteran economist Gary Schilling recently predicted a recession by the end of 2026, while Mark Zandi of Moody’s Analytics sees recession odds as “highly elevated” at 40%.

Hatzius acknowledged that Goldman’s recession forecast is still above both the pre-war level and unconditional long-term average by 5 points and 10 points respectively. Yet, he highlighted several reasons the bank sees relatively little impact from the war and the 10-week closure of the Strait of Hormuz.

“Fiscal policy, the AI boom, and—with a brief interruption in March—financial conditions have been supportive all year,” he wrote. “Under our baseline assumption of a gradual Strait reopening that starts soon and finishes in late June, we see Brent prices stable in the near term and edging down to $90/barrel by year-end.”

In addition, Hatzius added that despite constant volatility through the ten week period, oil prices have not risen by as much as many expected, due in part to the extremely high US oil reserves prior to the war breaking out.

“Markets never lost faith that very large consumer price hikes would prompt a US policy shift,” he noted.