Investing.com -- Goldman Sachs analysts warned of two major shifts in global markets that are challenging the long-standing narrative of U.S. exceptionalism.
In a note Monday, the investment bank said the combination of "a sharp re-rating lower of US growth" and "a sharp re-rating higher in the fiscal impulse in Germany" is shifting the balance of global economic leadership.
The lower U.S. growth expectations come amid "tariff volatility and the environment of broader policy uncertainty created by the new Administration."
Goldman has revised its 2025 U.S. GDP growth forecast to 1.7% from 2.4%, largely due to trade policy concerns.
They note that markets, however, have already priced in a much sharper slowdown, equivalent to a 150-basis-point downgrade in one-year-ahead GDP growth expectations.
Meanwhile, Germany’s post-election fiscal proposals represent "a sea change in the likely fiscal impulse."
Goldman notes that investor sentiment has shifted toward Europe, as Germany’s increased defense and infrastructure spending "sharply reduces the tail of very poor growth and low ECB policy rates."
Goldman also says that investors can no longer rely on a "policy put" from either the U.S. government or the Federal Reserve.
The administration has signaled it will not rule out a recession, and the Fed remains hesitant to step in as "actual and proposed tariffs are also raising the near-term inflation outlook."
"A quick floor likely only if policy shifts," Goldman writes, warning that economic uncertainty could delay spending decisions and increase recession risks.
While markets may stabilize if the labor market remains strong, "it may be hard for data alone to provide a definitive floor under market pricing."
With global investors holding significant U.S. assets, Goldman sees further room for market shifts unless underlying policies change.
