Goldman Sachs lists the five major potential "killers" of the U.S. economy: a sharp decline in U.S. stocks leading the list, with AI also making the list!

In a recent research report released this week, Goldman Sachs team made a relatively optimistic forecast for U.S. economic growth this year, expecting the GDP growth (Q4/Q4) to reach 2.5% in 2026, 0.4 percentage points higher than consensus expectations. This is mainly supported by U.S. government tax cuts, reduced tariffs drag, and easing financial conditions.

However, the report also focuses on five major downside risks to the 2026 U.S. economic growth forecast. Almost all of these risks are closely related to current popular topics and focal points in the market.

Risk ①: Stock Market Correction

Among the downside risks to the economy, Goldman Sachs first considers the potential impact of a stock market correction on consumer spending and business investment. They use a wealth effect model to simulate different stock market scenarios to quantify how changes in net assets affect consumer expenditure growth.

Goldman estimates that if the U.S. stock market continues to decline by 10% before Q2 2026 relative to its baseline forecast, it could reduce GDP growth in 2026 by about 0.5 percentage points.

Risk ②: AI-Driven Labor Market Losses

Goldman points out that the more disruptive deployment of AI is a major risk to its baseline forecast of stable labor markets. Currently, in some sectors where AI deployment is easiest, employment growth has begun to slow and turn negative—losing an average of 5,000 to 10,000 jobs per month in 2025. Goldman currently expects the U.S. unemployment rate to rise slightly to 4.5% by the end of 2026, partly reflecting early job losses due to AI.

However, Goldman’s global economic team’s analysis suggests that AI risks may tend to have a larger impact on unemployment rates. For example, faster AI adoption leading to labor losses could add up to 0.3 percentage points to the unemployment rate in 2026. Goldman estimates that every 0.5 percentage point increase in unemployment could reduce consumer spending growth by about 0.4 percentage points. Additionally, AI may also suppress demand by reducing the share of labor income in income distribution.

Nevertheless, Goldman also notes that the net impact of AI on GDP will depend on whether AI merely suppresses hiring or also boosts productivity growth. If, as Goldman expects, AI enhances productivity, historical experience shows that even with rising unemployment, the net GDP effect could remain positive as productivity gains offset spending resistance, since productivity increases translate into higher income and expenditure, offsetting reduced spending by unemployed individuals.

Risk ③: Inflation Upside from Tariffs

Goldman points out that U.S. tariff rates could further rise, or the costs borne by consumers could be higher than initially expected.

Goldman analyzes two types of inflationary risks from tariffs and their impact on economic growth. First, the pass-through rate of tariff costs to consumers could be higher than the initially estimated 70%. Goldman evaluates a scenario where 100% of tariff costs are passed on to consumers, which would raise the core PCE inflation rate in 2026 by about 0.3 percentage points compared to baseline.

Second, although Goldman expects that the effective tariff rate, affected by recent Supreme Court rulings and new tariff provisions, has slightly decreased from 10 percentage points to 9 percentage points since early 2025, the actual increase could be larger than expected. Goldman estimates that every additional 5 percentage point increase in the effective tariff rate could raise core PCE inflation by 0.5 percentage points relative to baseline and reduce 2026 GDP growth by 0.4 percentage points.

Risk ④: Geopolitical Tensions Leading to Oil Price Increases

Goldman notes that geopolitical tensions could push up crude oil prices, dragging down U.S. economic growth. Although Goldman’s baseline commodity strategy forecast is that oil prices will peak in February and gradually decline for the rest of 2026.

Goldman assesses that a $10 per barrel increase in oil prices from current forecasts could impact GDP. Their oil consumption model shows that higher oil prices would reduce household real disposable income, which could slow GDP growth in 2026 by about 0.07 percentage points. Of course, higher oil prices would also boost capital expenditure in the energy sector, providing some positive contribution to GDP growth—but given recent declines in energy capex sensitivity to oil prices and the temporary nature of price increases, this effect is expected to be moderate.

Overall, Goldman estimates that a $10 increase in oil prices relative to baseline would reduce 2026 economic growth by 0.05 percentage points.

Risk ⑤: Greater Loan Losses for Private Credit Firms

Goldman points out that losses in private credit at the end of 2025, along with recent sell-offs in private investment fund stocks, have sparked market concerns about risks in the non-bank lending sector.

Although private credit loans are less transparent, the valuations of publicly listed private credit funds suggest market expectations of further loan losses. Goldman estimates that if loan losses for private credit firms increase to 5% (above the roughly 2% historical average), it could reduce 2026 GDP growth by 0.2 percentage points.

Conclusion

Goldman concludes that the most significant short-term risk currently is a sharp stock market correction.

While any single downside risk, unless extremely severe, is unlikely to cause a recession, the simultaneous occurrence of multiple risks—especially a stock sell-off combined with AI-driven labor market losses (with limited productivity gains)—could pose a more substantial growth hurdle.

In such a scenario, the Federal Reserve might need to cut interest rates more aggressively to offset some of the negative impacts.

(Source: Caixin)