S&P says the risk of a U.S. recession has declined amid resilient economic growth, according to its business cycle barometer

S&P says the risk of a U.S. recession has declined amid resilient economic growth, according to its business cycle barometer

S&P Global Maintains Elevated U.S. Recession Risk Amid Policy Uncertainty, But Growth Resilience Offers Cautionary Optimism

S&P Global’s U.S. Business Cycle Barometer indicates that while recession risk remains elevated, recent economic resilience and shifting policy dynamics have tempered immediate concerns. The barometer, which assesses cyclical vulnerabilities, highlights persistent challenges such as policy unpredictability and labor market imbalances but notes stabilizing factors including AI-driven investment and accommodative financial conditions.

The U.S. economy is projected to grow at 2% in 2025 and 2026, slightly above near-term potential, driven by continued spending on AI-related infrastructure, including data centers and software according to research. This surge in technology investment has bolstered domestic demand and supported global tech exports. However, consumer spending growth is expected to remain subdued, constrained by tighter household budgets and a labor market characterized by “low-hire, low-fire” dynamics.

Inflation has eased to near 3%, with expectations of a gradual decline toward 2% by mid-2026. The Federal Reserve is anticipated to implement a 25-basis-point rate cut in December 2025, followed by an additional 50 bps of easing in the second half of 2026, though delays in data releases due to government shutdown risks could alter this timeline.

While S&P acknowledges the Fed’s accommodative stance and AI tailwinds as growth catalysts, it cautions that policy uncertainties—particularly around tariffs and fiscal measures—remain key risks. For instance, although U.S. tariffs have had a milder-than-expected impact so far, their long-term effects on trade and inflation could reintroduce volatility.

Globally, the AI boom has spurred growth in Europe and Asia-Pacific, with Germany’s fiscal stimulus and India’s robust expansion further stabilizing regional economies. However, diverging trade policies and geoeconomic tensions continue to cloud the outlook for a coordinated global recovery.

In summary, while S&P’s barometer underscores a nuanced balance between resilience and risk, investors should remain attuned to evolving policy landscapes and inflation trajectories as critical determinants of the U.S. economic path.