Fitch Upgrades World GDP Forecast on Better Incoming Data
Fitch Ratings has raised its world growth forecasts for 2025 moderately since the June Global Economic Outlook (GEO) on better-than-expected incoming data for 2Q25.
But there is now evidence of an underlying US slowdown in ‘hard’ economic data and positive surprises on eurozone growth have partly reflected US tariff front-running. Fitch still expects world GDP to slow significantly this year.
Global growth is now forecast to be 2.4% in 2025, up 0.2pp since June but a sizeable slowdown from 2.9% last year and below trend. China’s forecast has been raised to 4.7% from 4.2%, the eurozone’s to 1.1% from 0.8% and the US’s to 1.6% from 1.5%. World growth for 2026 is 0.1pp higher at 2.3%.
There has been a reduction in uncertainty over US tariff policy after a flurry of announcements. Our latest estimate of the average US effective tariff rate (ETR) is 16%, very close to the rate assumed in June.
Mexico and Canada face lower ETRs, due to better USMCA compliance and Europe’s ETR is also slightly lower, but this is offset by higher-than-expected rates for Asia excluding China.
“Greater clarity about US tariff hikes does not alter the fact that they are huge and will reduce global growth. And evidence of a slowdown in the US is now appearing in the hard data; it’s no longer just in the sentiment surveys,” said Brian Coulton, Chief Economist at Fitch.
Pass-through from this huge jump in the ETR to US CPI inflation has so far been modest. There is some evidence in the US national accounts that the tariff shock has been absorbed partly by downward pressures on corporate profits, but we expect pass-through to accelerate later this year.
Higher inflation will dampen real wage growth and weigh on US consumer spending, which has already slowed notably in 2025.
Job growth has also decelerated markedly, partly reflecting the impact of the immigration squeeze on labour force growth. A widening fiscal deficit should support demand in 2026, but Fitch expects the US annual average GDP growth rate to remain well below trend at 1.6% next year.
China’s export growth has held up well in the face of the US tariff shock, as a depreciating nominal effective exchange rate and falling export prices have helped a redirection of foreign sales. Fiscal easing is supporting growth, but private domestic demand growth seems to be weakening, and deflation is increasingly entrenched.
Eurozone exports are unlikely to sustain their 1H25 pace and, with the consumer recovery fading, we do not expect GDP to expand in 2H25. German fiscal easing will provide more support next year.
The weakening in the US job market should persuade the Federal Reserve to cut rates more quickly than we previously anticipated. We expect cuts of 25bp in September and December, with three more in 2026.
With the ECB now looking unlikely to lower rates again, we see little prospect of a rebound in the dollar after the broad-based depreciation in 1H25. Long-term 30-year government bond yields in the US, UK, Germany and Japan continue to see upward pressure, possibly reflecting concerns about supply.
