The chances that the U.S. will experience a recession in 2025 have increased because of the tariffs it has implemented, Alec Kersman, managing director and head of Asia-Pacific at Pimco, said at CNBC’s CONVERGE LIVE event in Singapore on Wednesday.
There is a “maybe 35% probability” that the U.S. will enter a recession this year, Kersman told CNBC’s Martin Soong. That’s up from the approximately 15% chance that Pimco estimated in December 2024 as the repercussions of U.S. President Donald Trump’s tariffs take effect.
Nevertheless, Kersman pointed out that the firm’s base case scenario is that the U.S. economy will grow by 1% to 1.5%, which is still an expansion, despite being “quite a significant decrease” from earlier expectations.
In fact, according to Kamal Bhatia, president and CEO of Principal Asset Management, a boost in domestic consumption because of such trade policies could help the U.S. economy grow more than anticipated.
Risk of insularity
Trade wars could cause countries to “go back to being insular,” Bhatia said, which could cultivate “spurts of patriotism that translate into people spending more locally in their own nation.”
Most people will underestimate such effects because they focus on the “external effects” on gross domestic product, Bhatia added.
Consumer spending on goods and services account for around two-thirds of U.S. gross domestic product. There is therefore is a “high probability” that a tariff-induced increase in domestic expenditure will cause the country’s GDP to “do better than you anticipate,” Bhatia said.
Those potential changes in spending patterns come as geopolitics begin to play a bigger role in economies and markets, Bhatia noted.
“We’ve had very muted geopolitics in investing for a long period of time, and clearly tariffs are changing that,” he said.
On Tuesday, Trump announced he will be doubling tariffs on imports of Canadian steel and aluminum to 50% in response to Ontario Premier Doug Ford’s 25% surcharge on the province’s electricity exports to the U.S.
Trump backtracked on his plan after Ford said he was suspending the surcharge after agreeing with U.S. Commerce Secretary Howard Lutnick to renew trade talks.
