• Goldman Sachs lowers its 12-month US recession probability to 15% from 25%, citing a peace agreement with Iran.
  • The bank points to lower energy prices and a strengthening labor market as key supports for the downgrade.
  • The new estimate is below even its pre-war 20% recession view, signaling a sharp improvement in outlook.

A Sharp Reversal in Outlook

Goldman Sachs has cut its 12-month US recession probability to 15%, down from 25%, according to a note from chief economist Jan Hatzius. The revision comes after a peace agreement with Iran eased geopolitical tensions, reducing the risk of supply disruptions and supporting global energy markets. The new forecast is notably lower than the bank's pre-war estimate of 20%, reflecting a more resilient economy than previously feared.

“The easing of geopolitical risk, combined with lower energy prices and a robust labor market, has meaningfully improved the near-term growth outlook,” Hatzius wrote. The bank now sees a softer recession path, with financial conditions moving closer to pre-conflict levels.

Energy and Labor Market Tailwinds

Lower oil prices are expected to boost consumer purchasing power and keep inflation in check, allowing the Federal Reserve to maintain a supportive stance. Meanwhile, the labor market continues to show strength, with job gains supporting household spending and confidence.

“We’ve seen a clear shift in the data,” a person familiar with the matter said. “The labor market is holding up better than expected, and that’s a key reason for the downgrade.” Goldman’s financial conditions index has also eased, signaling more accommodative funding conditions that should help sustain economic activity.

Residual Risks Remain

Despite the upgrade, Goldman cautioned that uncertainties persist. “Geopolitical tail risks haven’t disappeared entirely,” Hatzius noted, adding that the path forward depends on the durability of the peace deal and global demand conditions. Some analysts remain vigilant about structural risks such as inflation dynamics and potential policy shifts.

Other institutions have yet to update their own recession forecasts, but Goldman’s move could prompt a broader reassessment. The 15% probability puts Goldman below the consensus view among economists surveyed by Bloomberg, which has remained around 20%.

*Correction: An earlier version of this article misstated the prior recession probability as 20%. The correct figure is 25%.