Goldman Sachs has lowered its estimate of the probability of a US recession within the next 12 months from 25% to 15%, citing the economic effects of a peace agreement with Iran, lower energy prices and improving labour-market conditions.
The revised probability is below Goldman’s 20% estimate before the conflict and matches the bank’s long-term average recession probability. Chief economist Jan Hatzius also raised the firm’s forecast for annualised US gross domestic product growth in the second half of 2026 to 2%.
Key Overview
Goldman’s revised recession assessment reflects a sharp reversal in the risks facing the US economy. The earlier increase to 25% followed concerns about weaker employment data and the inflationary impact of the Middle East conflict.
Lower petrol prices are now expected to lift household real incomes, while the economy continues to benefit from artificial-intelligence investment, stronger equity wealth and substantial corporate capital expenditure.
Goldman expects real consumer spending to grow by about 1.5%, even as the temporary support from larger tax refunds during the second quarter fades.
Lower Energy Prices Improve the Growth Outlook
The easing of geopolitical tensions has reduced the immediate threat of another major energy shock. Lower oil and petrol prices can support consumer purchasing power by reducing household transport and utility costs, leaving more income available for other goods and services.
Hatzius said the improved forecast reflects a positive sequential boost to real income from declining petrol prices. That support comes as business investment connected to data centres, semiconductors and artificial-intelligence infrastructure continues to contribute to economic activity.
The improvement does not imply a rapid acceleration. Goldman still expects moderate growth because households face elevated borrowing costs and some of the fiscal support that lifted spending earlier in the year is expected to weaken.
Labour Market Improvement Reduces Downside Risk
Goldman also cited better labour-market developments as a reason for lowering the recession probability. Employment conditions had previously raised concerns that weaker hiring could translate into lower consumption and a broader slowdown.
The revised 15% estimate returns Goldman’s recession probability to what the bank has historically described as its unconditional long-term average.
A stable labour market is important because consumer spending accounts for the largest share of US economic activity. Continued income growth and limited job losses could help the economy absorb restrictive interest rates without entering a contraction.
Inflation Could Ease as Petrol Prices Fall
Goldman expects falling petrol prices to produce an outright decline in seasonally adjusted consumer prices in June. The bank also forecasts that core consumer price inflation, which excludes food and energy, will average about 0.17% per month over the next three months.
That projection suggests underlying inflation may remain contained even after the earlier energy-price shock. However, the outlook remains sensitive to services inflation, tariffs and any renewed disruption in global commodity markets.
The Federal Reserve held its policy rate at 3.50% to 3.75% during its June meeting. Policymakers nevertheless signalled that a rate increase remains possible in 2026, reflecting continued concern about inflation above the central bank’s target. Goldman has maintained its baseline view that the Fed will not raise rates this year, although several competing forecasts now expect tightening.
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AI Investment Supports Growth but Raises Valuation Risks
Artificial intelligence remains a major pillar of Goldman’s positive economic outlook. Rising investment in data centres, computing equipment, energy infrastructure and advanced semiconductors is supporting corporate spending and equity-market wealth.
Goldman estimates that AI-related capital expenditure could continue rising strongly through 2027. However, the bank has also warned that valuations across parts of the AI market are becoming increasingly demanding.
A recent assessment of AI investment noted that spending by major technology companies may exceed existing forecasts, but physical constraints involving power, labour, memory chips and construction could slow deployment. High valuations may also increase market volatility if expected productivity gains take longer to appear.
Goldman Lowers Its Year-End Gold Target
Goldman separately reduced its December 2026 gold-price forecast by $500 to $4,900 per ounce. The previous $5,400 target had been supported by expectations of strong central-bank purchases and rising investment in gold-backed exchange-traded funds.
The revised gold outlook reflects lower projected inflows into gold ETFs and a more hawkish Federal Reserve environment. Higher interest rates tend to raise the opportunity cost of holding non-yielding assets such as bullion.
Despite the downgrade, the $4,900 target still implies potential gains during the second half of the year. Goldman analysts continue to expect structural demand from central banks to support prices, even as the prospects for near-term monetary easing diminish.
Outlook Improves but Risks Remain
Goldman’s reduced recession probability points to a more resilient US economy than feared during the height of the Middle East conflict. Lower energy prices, firmer employment and continued AI investment have improved the near-term outlook.
However, moderate consumer growth, elevated interest rates, persistent inflation risks and expensive technology valuations remain important constraints. The 15% recession estimate signals reduced danger rather than the disappearance of economic risk.
Sources: The Wall Street Journal / Goldman Sachs / Yahoo Finance / Reuters / Business Insider / NDTV Profi
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