Goldman Sachs, GS, says to brace for a bigger stock drawdown, wider credit spreads and recession

The United States could face a recession as a result of the fallout from a global trade war, though the economic pain would be felt broadly — including in the eurozone, albeit to a lesser degree, French central bank governor François Villeroy de Galhau said Wednesday.

Speaking at the Atlantic Council in Washington, Villeroy warned that while the U.S. has imposed a wide array of tariffs globally — suspending some but keeping many in place — the heightened uncertainty is already weighing on investment, business confidence, and output.

“The newly announced measures, along with rising unpredictability, represent a major negative shock to the global economy — but above all, to the U.S. economy,” Villeroy said. “A U.S. recession, which seemed unimaginable just three months ago, is now a real possibility.”

The euro area would not be immune, he added, estimating that the trade tensions could shave at least 0.25 percentage points off the region’s 2025 GDP.

Some analysts have argued that trade wars will drive inflation higher, but Villeroy downplayed that concern, suggesting the broader effect could be disinflationary. “There is currently no inflation risk in Europe,” he said. “The overall impact on prices is more uncertain, but may even be to the downside.”

He also warned that continued attacks on central bank independence could further destabilize financial markets. President Donald Trump has repeatedly criticized Federal Reserve Chair Jerome Powell in recent weeks, although he appeared to step back from threats to remove him — a move that helped calm jittery markets.

“I would like to once again express my appreciation for Chair Powell, who is demonstrating exactly how a central banker should act,” Villeroy said.

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