The Wall Street Journal is reporting that rising energy prices tied to Middle East tensions are beginning to reshape the economic outlook, with Goldman Sachs warning that higher oil and gas costs, tighter financial conditions, and fading fiscal support are increasing downside risks for growth while lifting recession probabilities.
- Recession risk rising: Goldman Sachs now sees a 30% chance of a U.S. recession within 12 months, up from prior estimates by 5 percentage points
- Energy shock impact: Surging oil and gas prices are a key driver, compounded by geopolitical tensions and tighter financial conditions
- Labor market outlook: Goldman expects unemployment to rise to 4.6% by year-end
- Fed policy path: Despite risks, the bank still anticipates rate cuts in September and December
- Growth slowing: U.S. GDP is projected to grow below trend in H2, with annualized growth between 1.25% and 1.75%
- Oil outlook revised higher: Forecasts increased due to ongoing disruption in the Strait of Hormuz
- Global spillover effects: Higher energy prices are expected to boost global inflation and reduce global GDP by ~0.4 percentage points
- Worst-case scenario: Economic damage could double or triple if disruptions intensify
Meanwhile the Atlanta Fed GDPNow growth estimate for Q1 has declined to 2.0% from 2.3% last. According to the Atlanta Fed:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2026 is 2.0 percent on March 23, down from 2.3 percent on March 19. After this morning’s construction spending report from the US Census Bureau, the nowcast of first-quarter real private fixed investment growth decreased from 3.1 percent to 1.2 percent.
The US construction spending for January came in at -0.3% versus 0.1% expected, but that came after a 0.8% rise in December (positive for Q4).
The next GDPNow update is Wednesday, April 1. Please see the “Release Dates” tab for a list of upcoming releases.
