Fitch Ratings’ forecasts for world growth have been sharply lowered in response to the recent severe escalation in the global trade war. This special update to our quarterly Global Economic Outlook (GEO) cuts world growth in 2025 by 0.4pp and China and US growth by 0.5pp from our March GEO.
US Tariff Rate Is Highest for 110 Years
US ‘Liberation Day’ tariff hikes were far worse than expected. While subsequently paused and replaced with a near-universal 10% rate for 90 days, the shock prompted several rounds of retaliatory moves between China and the US, taking bilateral tariff rates over 100%. The US average effective tariff rate (ETR) has risen to 23%, the highest since 1909 and well above the 18% we assumed in March. It is hard to predict US trade policy with any confidence, but Fitch now assumes the US ETR on China will remain above 100% for some time before falling back to 60% in 2026. For now, we stick with our March assumption of a 15% US ETR on other trade partners.
US-China Trade Flows Could Collapse
Tariff escalation will hit US-China trade flows dramatically. With limited scope for import substitution or trade diversion in the near term, the adverse supply shock in the US could be marked. We have raised our US inflation forecast to over 4% implying a stagnation in real wages. Massive policy uncertainty is hurting business investment prospects, equity price falls are reducing household wealth and US exporters will be hit by retaliation.
Fed Easing Constrained by Inflation Outlook
Fitch still expects the Federal Reserve to wait until 4Q25 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 in the past two months. However, the surprising weakening of the US dollar has created more space for other central banks to ease and we now expect deeper rate cuts from the ECB and in emerging markets. Lower commodity prices – we have lowered our 2025 Brent oil price assumption by USD5 to USD65 – will also facilitate a faster pace of monetary easing outside the US, as growth slows.
Información extraída de: https://www.fitchratings.com/economics/global-economic-outlook-excerpt#forecast-summary
