Monday

30-06-2025 Vol 19

Global Economic Slowdown Expected Despite Easing Tariffs Between the US and China

The recent easing of trade tensions between the US and China has prompted Fitch Ratings to revise its global growth forecasts positively. However, despite this de-escalation, the world economy is still anticipated to experience a notable slowdown due to the impacts of a trade war that has been unprecedented in severity since the 1930s. In its June 2025 Global Economic Outlook (GEO), Fitch now projects world GDP growth at 2.2% for 2025, an increase of 0.3 percentage points since its previous forecast in April. For 2026, the growth forecast has also been raised to 2.2%, up from 2.0%.

These projections are significantly lower than the 2.9% growth recorded in 2024 and below the long-term average of 2.7%. In the United States, Fitch has increased its growth outlook for 2025 to 1.5% from 1.2%, indicating that recession risks are lessening. However, signs of a slowdown in domestic demand are emerging, with expectations of reduced consumer spending in the latter half of the year. Similarly, China’s growth forecast for 2025 has been lifted to 4.2%, up from 3.9%, while eurozone growth has been revised to 0.8% from 0.6%.

Despite these upward revisions, the effective tariff rate in the US currently stands at 14.2%, projected to rise slightly, creating uncertainty that dampens growth. The increased tariffs have negatively impacted business and consumer confidence in the US, leading to a rise in imports and inventory build-up. Although the immediate effect on consumer price index (CPI) has been minimal, producer prices and price pressure surveys indicate rising costs. In China, fiscal easing will serve as a primary tool to mitigate the adverse effects of US tariffs.

The country may also benefit from a weaker dollar, aiding its exporters in gaining market share internationally. Meanwhile, Germany is facing challenges from US tariffs, particularly in the automotive sector, although domestic demand has shown signs of resilience. The Federal Reserve is expected to proceed cautiously with interest rate cuts as US growth trends downward, predicting only a single rate cut in the fourth quarter of 2025. Inflationary pressures persist, driven by tariffs and a deceleration in labor force growth, alongside heightened concerns over oil price volatility, which has resulted in an increased annual average oil price forecast.

The European Central Bank remains poised to adjust rates in response to evolving economic conditions.

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