Fitch Ratings has moderately revised its global economic growth forecast for 2025 upwards after considering better-than-expected second quarter economic data, compared to its June Global Economic Outlook (GEO). However, there is currently evidence suggesting a potential slowdown in the U.S. economy in the 'hard' data, while the surprises in eurozone economic growth partly reflect the impact of the preemptive U.S. tariffs. Fitch still expects a significant slowdown in global GDP this year.
Fitch now anticipates a global GDP growth of 2.4% this year, an increase of 0.2 percentage points from June, but a substantial slowdown compared to last year's 2.9%, and below the trend. The growth forecast for China has been raised from 4.2% to 4.7%, while the eurozone's forecast has been increased from 0.8% to 1.1%, and the U.S. GDP growth forecast has been adjusted from 1.5% to 1.6%. Fitch has also revised its global GDP growth forecast for next year upwards by 0.1 percentage points to 2.3%.
Fitch stated that the uncertainty surrounding U.S. tariff policy has decreased following a series of recent announcements. The latest estimate for the U.S. effective tariff rate (ETR) is 16%, which is very close to the level assumed in June. Mexico and Canada face a lower ETR due to better compliance with the USMCA, and the ETR in Europe has also slightly decreased, but this has been offset by higher-than-expected tariff rates in Asia (excluding China).
Fitch's Chief Economist Brian Coulton noted that the greater clarity regarding U.S. tariff increases has not changed the fact that they are substantial and will lower global growth. Evidence of a slowdown in the U.S. economy has now appeared in hard data, no longer limited to sentiment surveys.
Currently, the significant rise in this effective tariff rate has a relatively moderate transmission effect on U.S. CPI inflation. U.S. national economic accounting data indicate that the tariff impact has been partly absorbed by downward pressure on corporate profits, but Fitch expects the inflation transmission to accelerate later this year.
Fitch stated that higher inflation will suppress real wage growth and put pressure on U.S. consumer spending, which has already significantly slowed in 2025. Employment growth in the labor market has also noticeably decelerated, partly reflecting the impact of immigration restrictions on labor force growth. The widening fiscal deficit should support demand in 2026, but Fitch anticipates that the U.S. average annual GDP growth rate will remain well below trend at 1.6%.
China's export growth has shown resilience in the face of U.S. tariff impacts, supported by a nominal effective exchange rate depreciation and declining export prices that help redirect overseas sales. Fiscal easing is supporting growth, but private domestic demand growth appears to be weakening, with deflation increasingly intensifying.
Eurozone exports are unlikely to maintain the growth rate seen in the first half of the year, and as consumer recovery weakens, Fitch anticipates no GDP growth in the second half. Germany's fiscal easing will provide more support next year.
The weakness in the U.S. labor market is expected to prompt the Federal Reserve to lower interest rates more quickly than Fitch previously anticipated. Fitch forecasts a 25 basis point rate cut in September and December, followed by three additional cuts in 2026.
Given that the European Central Bank now appears unlikely to lower interest rates again, Fitch believes the likelihood of the dollar rebounding after a broad depreciation in the first half of 2025 is low. The 30-year government bond yields in the United States, the United Kingdom, Germany, and Japan continue to face upward pressure, potentially reflecting concerns about supply.