Investing.com -- Fitch Ratings has sharply downgraded its global growth forecast for 2025 amid mounting trade tensions. The agency cut its world growth estimate by 0.4 percentage points, trimming U.S. and China projections by 0.5 points from March forecasts.
U.S. annual growth is now expected to slow to 1.2% in 2025, falling to just 0.4% year-over-year in Q4. China’s expansion is projected to dip below 4% through 2026, while eurozone growth remains below 1%.
The forecast for global GDP to fall below 2% this year marks the weakest pace since 2009, excluding the pandemic period. Trade war disruptions and tariff escalations are driving the slowdown.
Recent U.S. tariff hikes, introduced on ‘Liberation Day’, have triggered retaliatory actions from China. The moves push bilateral tariff rates above 100%, with the U.S. effective tariff rate now at 23%—its highest since 1909.
Fitch now sees the U.S.-China effective tariff rate remaining above 100% before gradually declining to 60% next year. Other trading partners will continue to face a 15% rate, pressuring global trade flows.
The escalating tariffs risk a supply shock to the U.S., accompanied by reduced business investment and sluggish wage growth. Fitch raised its U.S. inflation forecast above 4% as consumer prices and economic uncertainty rise.
China, while benefiting from strong trade contributions in 2024, faces headwinds from a housing downturn and falling prices. Fitch anticipates more fiscal and monetary easing in Beijing to support activity.
The U.S. may channel some tariff revenues into tax cuts over the next 18 months. Still, as both the U.S. and China slow, spillover effects are expected to dampen global growth across major economies.
Fitch expects the Federal Reserve to delay rate cuts until late 2025, even as growth underperforms. The weakening U.S. dollar may enable deeper rate cuts from the ECB and emerging markets this year.
Oil prices are also seen falling further, with Fitch lowering its 2025 Brent crude assumption by $5 to $65. The adjustment is expected to support faster easing outside the U.S. as central banks respond to slowing momentum.