Is tariff impact on inflation, recession risk overplayed? Economists' survey provides insights

When President Trump announced ‘liberation day’ tariffs back in April – and during the various plot twists that have occurred since – the domestic focus has been on how the US economy would cope with higher costs of trade.

But while the underlying narrative remains that there will be a negative impact on the economy going forward, there is some hope that it will not be quite as bad as feared, according to a new survey of economists.

The quarterly reading of sentiment among professional forecasters by the Wall Street Journal reveals expectation on average that GDP will grow by 1% year-over-year in the fourth quarter of 2025 before rebounding to 1.9% in 2026. Although this year’s figure is down from the 2% the survey predicted in January, it does improve from the 0.8% prediction made during the tariff-fueled mayhem of April.

The story is similar for recession risk, which has jumped to 33% in the latest survey from January’s 22% but is a significant decrease from April’s 45%, even as economists remain concerned about how businesses – with many already challenged by the current landscape - will cope with higher import and export costs and how this may affect consumer spending, which has held up so far.

The WSJ’s survey of 69 economists polled at the start of July also reflects the strength of the US labor market which produced a better set of stats than had been expected for May, with 147,000 jobs created and unemployment holding at 4.1%, near recent levels. This data, along with other recent signals for the economy is clearly in the minds of those experts who took part.

However, even with the improved tone of the latest poll, the outlook remains uncertain and indicative of slowing growth and this is also seen in the cautious behavior seen in retail investors and reflected in a recent report from Allianz Life. The Q2 Market Perceptions report found that 48% of respondents are currently too anxious to invest – the highest percentage recorded since the survey began in 2019 – and an increase from 41% in the first quarter of this year.