Fitch lowers world growth forecast amid tariffs chaos
Summary
The ratings agency cut its U.S. 2025 growth forecast to 1.7% from 2.1%, a level well down from growth rates of closer to 3.0% in both 2023 and 2024.
SYDNEY : Fitch Ratings has added its name to a slew of prominent forecasters downgrading the outlook for world economic growth and push up its expectations for U.S. inflation, highlighting rising concerns about the erratic nature of U.S. economic and trade policies, while sharply complicating the task ahead for the Federal Reserve.
“The new U.S. administration has started a global trade war that will reduce U.S. and world growth, push up U.S. inflation and delay Federal Reserve rate cuts," Fitch said in its latest update on the economic outlook.
The ratings agency cut its U.S. 2025 growth forecast to 1.7% from 2.1%, a level well down from growth rates of closer to 3.0% in both 2023 and 2024. It also lowered its U.S. growth forecast for 2026 to 1.5% from 1.7%.
Fiscal easing in China and Germany will cushion the impact of higher U.S. import tariffs, but growth in the eurozone this year will still be slower, while Mexico and Canada will experience technical recessions given the scale of their U.S. trade exposures, it added.
World growth is set to slow to 2.3% in 2025, well below trend and down from 2.9% in 2024, Fitch said. World growth will remain weak at 2.2% in 2026.
The downgrades by Fitch follow a similar moves by the Paris-based Organization for Economic Cooperation and Development this week, with a number of private-sector forecasts also moving in the same direction.
Fears of a recession in the U.S. have grown sharply in the last month with the Trump administration ramping up tariffs on Canada, Mexico and China, while extending tariffs to imports of steel and aluminum.
The erratic nature of the policy has roiled financial markets, with shares in a steep retreat.
“The size, speed, and breadth of U.S. tariff hike announcements since January is staggering," Fitch said in its report.
The U.S. effective tariff rate has already risen to 8.5% from 2.3% in 2024 and is likely to rise further, it added.
Fitch assumes a 15% ETR will be imposed on Europe, Canada, Mexico and others in 2025, and 35% on China. This will push the U.S. ETR to 18% this year, the highest rate for 90 years, it said.
“There is huge uncertainty about how far the U.S. will go and our assumptions could be too harsh. But there are also risks of a larger tariff shock including from an escalating global trade war," the report said.
Tariff hikes will result in higher U.S. consumer prices, reduce real wages, and increase company costs, and the surge in policy uncertainty will take a toll on business investment, it said.
With the tariff shock estimated to add 1 percentage point to U.S. near-term inflation, the Fed will delay further easing until the end of this year, the report said.
Write to James Glynn at james.glynn@wsj.com
