Economy 3 April 2025, 3:58pm

Trump increasingly likely to push US and many economies into recession - expert

Portfolio

Donald Trump's economic strategy is based on hard bargaining, but this is creating serious uncertainty for businesses and the public, says investment expert and portfolio manager Viktor Zsiday, commenting on the latest developments in the tariff war. Zsiday warns that uncertainty over tariffs is holding back investment and consumption, which could ultimately lead to a recession.

Donald Trump's negotiating strategy is one that we know from his books: make bold and impossible demands that can be given a lot of leeway so that the other side can accept an unfavourable deal with relative satisfaction, the investment expert wrote on his blog on Thursday. According to Viktor Zsiday, this is probably what is happening now with the announced tariffs.

But he points out that

in economics, expectations are often more important than the facts themselves.

It may be a good idea to blackmail, threaten and run into the ground the bank or small shareholders that provided the funding in a casino financing/bankruptcy, but if the same technique is used in the wider economy, there will be severe repercussions, and quite quickly, Zsiday writes.

The expert says that, at the moment, business managers, wherever they are in the world, face huge uncertainty about tariffs: whether there will be demand for their products, how much duty they will have to pay, how, when, for how long; whether this will change; whether or not their suppliers will raise prices because of the same duties, etc.

Managers will have a lot of questions that they will not be able to answer because there are no answers in such an environment other than caution, says Zsiday. Slow down all current investments, do not start new ones, stop hiring and try to keep wages down.

Zsiday points out that in the meantime, the population is facing a rise in prices that is eroding or eliminating real wage growth, which means they cannot buy as many goods. Meanwhile, DOGE is creating huge uncertainty for all US public employees: how long they will have a job, how much they will be paid.

So the public will not spend much either, because they have neither the money nor the courage, says Zsiday.

Government spending will not increase either, at least not according to plan, so no help is expected from there either, he adds. Meanwhile, the lead time for monetary policy has increased significantly and no help will come from there, at most in the longer term.

But if there is no increase in investment and private consumption, no government spending and no monetary policy to help, how will there be growth?

Zsiday ponders.

The expert says it is not a foregone conclusion, but it is looking increasingly likely that Trump will push the US economy into recession, and possibly the economies of many other countries.

At the end of his article, Zsiday reiterates that the unpredictable, threatening economic environment and the resulting negative expectations are in themselves enough to cause a recession, even if a simple calculation suggests that tariffs should not necessarily cause one. The longer the uncertainty lasts, the more likely this outcome is, he concludes.