Are we diving into a recession in 2025?

Recession is something that every investor fears. This is because recessions usually are accompanied by slow economic activities, which is always bad for businesses and investors who want to invest in stocks.

However, they also present opportunities to buy valuable assets cheaply and create a foundation for building wealth. Therefore, defining whether we will enter a recession in 2025 can provide life-changing tips for investors.

After the current turmoil of multiple market crashes as a result of Trump’s tariffs, the debate about an impending recession has been renewed. In fact, many experts warn that a recession might be unavoidable. Let’s weigh both the warning signals and counterarguments to conclude how likely it is that the US economy faces a recession in 2025.

Background

Trump-era tariff policies, coupled with geopolitical tensions and shifting economic fundamentals, have caused havoc in the US stock markets. What followed was multiple red days for the markets, which is always a very bad sign. These crashes effectively evaporated trillions of dollars from stock markets and have a big potential to shake investors' confidence in equity markets. However, while stock markets are trembling, safe-haven assets such as Gold have seen a sharp rise. The gold is in a strong uptrend according to the top MT5 indicators, well beyond the moving average. If this bearish momentum continues for stock markets, we shall see gold’s price rise even further.

Steep declines in the S&P 500 and Nasdaq were the result of sudden selloffs driven by tariff uncertainty. This trend was only strengthened by the EU's recent announcements to impose counter-tariffs against the US products, 26 billion euros worth (28 billion USD), which is on par with USA tariffs against European products. These events have already raised alarm bells among economists, and many of their predictions are dire. President Trump’s aggressive tariff policies and shifting trade stances heavily impacted market stability, making financial markets unstable and leaving investors uncertain about future prospects. What makes the situation even worse is Trump’s unpredictable nature, which only adds fuel to the fire. Some experts, such as JPMorgan economists, see recession odds rising to 40%, which is a serious number.

Summary of arguments supporting a recession in 2025

To predict recessions, we need to analyze all the recession indicators further and see how real they are for the current economic situation in the world and the US.

Recession indicators

The most obvious indicator that something is wrong with the economy and that recession might be real is the JPMorgan’s alarming probability prediction (40%). Yield curve inversion and debt metrics are also powerful indicators of an upcoming recession. This happens when short-term interest rates exceed long-term rates. After a series of tariff announcements, the U.S. Treasury yields have been under pressure. Meanwhile, rising debt service ratios, the portion of income needed to service debt, are also seen as a harbinger of reduced spending by households and businesses.

Market behavior

Investor panic was reflected in sharp selloffs across major indexes and stocks. S&P 500 lost more than 10% of its value wiping out 4 trillion dollars in market value and Nasdaq slid even further. Trump’s tariff policies have a serious potential for economic slowdown. Uncertainties force market participants to rebalance their portfolios to respond to rising economic risks. These red days will enter history as some of the worst trading days of 2025, for sure.

Economic data trends

GDP forecasts for this year have also been pessimistic, including some models predicting an annualized rate as steep as -2.4%. Analysts also observed weakening corporate profit margins and sluggish consumer spending. Economic slow down is accelerated when consumers are no longer willing to spend money and corporations face declined profits.

Investor sentiment

The VIX or “fear index”; has been rising into the 20+ range (sometimes 25+). Rising VIX signals that market participants are increasingly nervous about potential economic headwinds. This is a result of widespread pessimism about the financial market and overall economy. Higher volatility forces investors to be more cautious and often seek safer assets like bonds.

Arguments against recession

Despite turbulent economic times and multiple market crashes, many companies still report strong earnings and low unemployment rates, which usually indicates resilience. Trump’s administration has implemented pauses in tariffs, which might indicate the administration is aware of potential dangers and recession, and they might implement or halt tariffs wisely so that the US economy is not damaged in any major way.

While equity markets are shaken to the core, bond markets are relatively stable.

Overall, when we analyze current political and economic events, there are more arguments for an impending recession than against it. This is enhanced by the fact that several crashes have already evaporated trillions from equity markets, and tariffs are only paused, never canceled, which only delays the inevitable.