Fitch Ratings sees world growth slowing to 2.3% this year amid global trade war
KUALA LUMPUR: Fitch Ratings expects world growth to slow to 2.3 per cent this year, “well below trend” and down from 2.9 per cent in 2024, particularly after the new US administration sparked a global trade war.
It noted that the slower world growth marked a 0.3 percentage point (pp) downward revision, “reflecting broad-based reductions in developed and emerging economies. Growth will remain weak at 2.2 per cent in 2026,” the rating agency said in a statement yesterday.
Fitch Ratings believes the global trade war will also “reduce US growth, push up US inflation, and delay US Federal Reserve (Fed) rate cuts.”
“We have cut both our US 2025 growth forecast to 1.7 per cent from 2.1 per cent in the December 2024 Global Economic Outlook (GEO) and our 2026 forecast to 1.5 per cent from 1.7 per cent. These rates are well below trend and down from almost three per cent annual growth in 2023 and 2024,” it said.
It said fiscal easing in China and Germany will cushion the impact of higher US import tariffs, but growth in the eurozone this year will still be a lot weaker than forecast in the December GEO.
“Mexico and Canada will experience technical recessions given the scale of their US trade exposures, and we have cut their annual 2025 forecasts by 1.1 pp and 0.7 pp respectively,” it added.
The rating agency noted that the size, speed, and breadth of US tariff hike announcements since January is staggering, with the US effective tariff rate (ETR) rising to 8.5 per cent from 2.3 per cent in 2024 and is likely to rise further.
“Our latest economic forecasts assume a 15 per cent ETR will be imposed on Europe, Canada, Mexico, and others in 2025, and 35 per cent on China. This will push the US ETR to 18 per cent this year before moderating to 16 per cent next year as the ETR on Canada and Mexico falls to 10 per cent. This would be the highest rate for 90 years,” it added.
It said the modelling suggests tariff increases will reduce gross domestic product (GDP) by about one pp in the United States, China, and Europe by 2026.
“Germany’s recent pivot to fiscal stimulus will do a lot to cushion the blow and will allow its economy to recover modestly in 2026. More aggressive policy easing will also help to offset the impact in China,” it added.
With the tariff shock estimated to add one pp to US near-term inflation, Fitch Ratings believes the Fed will delay further easing until the fourth quarter of 2025. “We now expect the Fed to cut just once this year, but then expect three more cuts in 2026 as the economy slows and tariff levels stabilise,” it said.
— BERNAMA
TAGS: Fitch Ratings, world growth, global trade war