The UCLA Anderson Forecast has issued its first-ever recession watch, warning that the Trump administration’s economic agenda could destabilise growth trajectories. While current indicators do not signal an immediate downturn, analysts caution that overlapping policy impacts may create systemic vulnerabilities.
Policy Crosscurrents and Sectoral Risks
Three interconnected policy areas are under scrutiny:
- Trade measures: Proposed tariffs on Chinese goods (initially 10%, potentially rising to 60%) and delayed levies on Canadian/Mexican imports threaten to inflate consumer prices for automobiles, electronics, and construction materials.
- Immigration reforms: Workforce reductions in agriculture, healthcare, and hospitality sectors could worsen labour shortages, while mass deportations risk disrupting supply chains and wage structures.
- Federal restructuring: Plans to downsize government roles and contractor positions may compound unemployment pressures.
“If these and their consequent feedback into the demand for goods and services occur simultaneously, they create a recipe for a recession,” the UCLA Anderson analysis states. However, the forecast acknowledges uncertainty about whether these impacts will manifest sequentially or concurrently, citing historical precedents like the 1995 slowdown.
Global and Domestic Economic Context
While a Teneo survey found 77% of CEOs and 86% of investors optimistic about global economic prospects post-Trump’s election, regional disparities persist. Europe and China face heightened exposure to trade volatility, particularly from proposed steel/aluminium tariffs.
Domestically, the CNBC Fed Survey’s March projections show a 36% recession probability within a year—up from 23% monthly—but still below pandemic-era false alarms.
Recession Dynamics and Timing
The National Bureau of Economic Research’s Business Cycle Dating Committee remains the sole arbiter of recession declarations, relying on metrics like production and employment trends. Current data do not meet contraction thresholds, though the UCLA Anderson Forecast anticipates potential weaknesses emerging in household spending patterns and financial sector vulnerabilities by late 2025.
“Weaknesses are beginning to emerge in households’ spending patterns. And the financial sector, with elevated asset valuations and newly introduced areas of risk, is primed to amplify any downturn. What’s more, the recession could end up being stagflationary,” the report concludes.
Officials have not dismissed recession risks outright, as President Trump framed potential impacts as a “period of transition,” and the Commerce Secretary suggested short-term pain could yield long-term gains. Wall Street analysts remain divided, with most viewing recession as a secondary scenario despite elevated concerns.
The UCLA Anderson Forecast projects a potential downturn within one to two years, contingent on policy implementation speed and sectoral interdependencies. Analysts caution that unprecedented policy combinations leave uncertainty about whether simultaneous or staggered impacts will dominate.