Apollo’s chief economist warns that the odds of a US recession have spiked to 90%

Torsten Slok, chief economist at Apollo Global Management and long-time bull on the US economic outlook, is sounding the alarm on the likelihood of a downturn.

“Tariffs have been implemented in a way that has not been effective, and there is now a 90% chance of what can be called a Voluntary Trade Reset Recession (‘VTRR’),” he wrote in a note to clients on Saturday. “If the current level of tariffs continues, a sharp slowdown in the US economy is coming.”

His thinking: studies show that the 2018 tariffs levied on China during Trump’s first term reduced the size of the economy by between 0.25% and 0.7% compared to what it otherwise would have been. These tariffs push the average US tax rate paid on imports up by significantly more. As such, Slok reckons this could shave almost 4 percentage points off GDP this year, “not including additional non-linear effects because of the current increase in uncertainty for consumer spending decisions and business planning.”

“The challenges for small- and medium-sized enterprises are now a macro problem for the US economy, where small businesses account for more than 80% of US employment and capex,” he wrote.

Prior to the onset of this trade war, Slok had been fairly optimistic on the prospects for the US economy.

At the start of March, he wrote a note to clients saying that DOGE and trade barriers would be “a modest stagflation shock but not a recession.” Near the dawn of the fourth quarter, he said that “goldilocks has arrived” while worrying of the risks of the economy becoming “too hot again” if the Federal Reserve reduced policy rates too quickly.

According to economists surveyed by Bloomberg, the probability of a US recession over the next 12 months is 30%. But only three of the more than 50 firms have updated their US recession odds since Liberation Day on April 2.