The US is expected to maintain positive annual growth at 1.2 per cent, but forecast to slow significantly, reaching just 0.4 per cent year-on-year (YoY) in the fourth quarter (Q4) of 2025, Fitch reported in its quarterly Global Economic Outlook (GEO).
China’s growth is forecast to fall below 4 per cent this year, while eurozone growth will remain stuck well below 1 per cent.
Fitch Ratings has downgraded its 2025 global growth forecast by 0.4 percentage points amid escalating US-China tariffs, predicting world growth below 2 per cent.
The US effective tariff rate has surged to 23 per cent, its highest since 1909, with inflation forecast above 4 per cent.
As growth in China and the eurozone slows, Fitch anticipates deeper rate cuts globally, aided by lower oil prices.
US ‘Liberation Day’ tariff hikes were far worse than expected, as per the Fitch. While subsequently paused and replaced with a near-universal 10 per cent rate for 90 days, the shock prompted several rounds of retaliatory moves between China and the US, taking bilateral tariff rates over 100 per cent.
“The US average effective tariff rate (ETR) has risen to 23 per cent, the highest since 1909 and well above the 18 per cent we assumed in March. It is hard to predict US trade policy with any confidence, but we now assume the US ETR on China remains above 100 per cent for some time, before falling back to 60 per cent next year. At this stage we are sticking with our assumption of a 15 per cent US ETR on other trade partners, in line with the assumption in the March GEO,” Fitch said in a non-rating action commentary.
Fitch Ratings has warned that escalating tariffs will significantly disrupt US-China trade flows. With limited near-term options for import substitution or trade diversion, the US is likely to face a pronounced adverse supply shock. It has revised its US inflation forecast to over 4 per cent, indicating stagnating real wages. Heightened policy uncertainty is dampening business investment, falling equity prices are eroding household wealth, and US exporters are expected to suffer from retaliatory measures.
China’s economy has grown faster than expected over the past year, but net trade has accounted for a third of GDP growth. This will slow sharply as exporters struggle to redirect sales in the near term. China’s housebuilding slump and deflationary pressures are continuing, but the agency expects fiscal and monetary policy easing to be stepped up.
The agency also expects some additional US tariff revenues to be recycled back into the US economy over the next 18 months, including through tax cuts. However, as the world’s two largest economies slow, spillovers will be felt far and wide, and this is reflected in its broad-based downward forecast revisions, added the report.
Fitch still expects the Federal Reserve to wait until Q4 2025 before cutting rates despite the deteriorating US growth outlook. Import prices are set to rise sharply and there has been an alarming jump in US households’ medium-term inflation expectations over the past two months. However, the surprising weakening of the US dollar has created more space for other central banks to ease and it now expects deeper rate cuts from the European Central Bank (ECB) and in emerging markets.
The decline in commodity prices is expected to support a quicker pace of monetary easing in economies outside the US as global growth slows. Fitch has lowered its 2025 brent oil price assumption by $5 to $65 per barrel, which is likely to ease inflationary pressures and provide central banks with more room to cut interest rates.
Fibre2Fashion News Desk (SG)
