Fitch Ratings has downgraded its global growth forecast for 2025 by 0.4 percentage points, predicting world growth to fall below 2%—the weakest since 2009 (excluding the pandemic). The downgrade is primarily due to escalating US-China trade tensions, with new tariffs significantly disrupting global trade flows.
The US effective tariff rate (ETR) has surged to 23%, it’s highest since 1909. The trade war’s impact has been worsened by retaliatory measures, with US-China bilateral tariffs exceeding 100%. Though a temporary 90-day pause with a 10% universal tariff was introduced, Fitch assumes the elevated tariffs will persist for the foreseeable future.
As a result, US inflation is forecast to rise above 4%, and real wages are expected to stagnate. The economic outlook for the US remains sluggish, with annual growth at 1.2%, slowing to 0.4% year-on-year by Q4 2025. Business investment is dampened due to heightened uncertainty, falling equity prices, and weaker household wealth.
China’s economy, though having outperformed expectations recently, is projected to grow below 4%, hindered by falling exports, a property slump, and deflationary pressures. The Eurozone is also expected to remain stagnant with growth well below 1%.
In response to weakening demand, global interest rate cuts are anticipated, especially outside the US. While the Federal Reserve is expected to hold off on rate cuts until late 2025, the European Central Bank (ECB) and emerging markets are likely to ease policy earlier. The decline in oil prices (with Brent forecast cut to $65/barrel) is expected to ease inflation and allow for faster monetary easing globally.
Fitch emphasizes that the slowdown of both the US and Chinese economies will have widespread ripple effects, underscoring the fragility of the current global economic outlook.
Comment here