Investing.com - Analysts at UBS have lowered their forecast for global growth over the next two years again, citing the impact of U.S. President Donald Trump’s sweeping tariffs.
In a note to clients, the analysts led Arend Kapteyn -- who have previously revised their forecast for worldwide activity three times over the past two weeks -- slashed their estimates by a further 60 basis points.
For 2025, global growth is seen slowing to 2.5% versus an intial outlook of 2.9%, followed by an additional 20 basis points of deceleration next year, the analysts predicted.
Projections for U.S. output this year were also revised down to 1.5% from 2% on a 12-month to 12-month basis. In 2026, the world’s biggest economy is tipped to come in at 0.8%, compared with a prior estimate of 1.8%. Inflation is also expected to increase "sharply" in the U.S. "but not really anywhere else" because "virtually no one" has retaliated against the measures -- apart from China -- and currency depreciation against the U.S. dollar has "either been limited or absent."
Earlier this month, Trump unveiled punishing tariffs on both friends and adversaries alike, although he has since partially paused these elevated duties on many countries for 90 days -- during which Washington is aiming to secure dozens of trade deals. The White House has also announced temporary exemptions for some tech products like smartphones and computers.
However, the Trump administration has moved to make China the central target of an intensifying trade war, slapping tariffs of up to 145% on the world’s second-largest economy. Beijing has responded with 125% tariffs on U.S. imports.
"Initially, the skew in the tariffs towards China was helping improve our growth and inflation forecasts a bit, as the reduction in reciprocal tariffs allowed for greater substitution away from tariffed goods," the UBS analysts wrote. "But with the escalating China tariffs most of that improvement was reversed."
The UBS analysts estimated that total dollar value of the current tariffs, which still include universal 10% levies and separate import taxes on items like aluminum, steel and autos, stands at $780 billion.
Still, the strategists flagged that there is "substantial uncertainty around all these numbers," adding that "uncertainty itself is hard to model."