How are US tariffs impacting global growth according to Fitch Ratings?

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US Tariffs Pose Significant Drag on Global Economic Expansion Despite Upward Forecast Revision

Fitch Ratings has revised its global growth forecast for 2025 upwards to 2.4 per cent from 2.2 per cent, but maintains that substantial US tariff increases represent a significant impediment to worldwide economic expansion. The agency highlights that while greater clarity on US tariff policy has somewhat reduced uncertainty, the sheer magnitude of these tariffs is inherently detrimental to global growth prospects. This assessment is underscored by mounting evidence of a slowdown within the United States itself, with "hard" economic data now corroborating earlier sentiment surveys.
Tariffs Dampen US Economic Performance

Evidence of a weakening US economy is becoming increasingly apparent in tangible economic indicators, moving beyond mere sentiment surveys. While initial national accounts data suggest that corporate profits have absorbed some of the tariff shock, an acceleration in the pass-through of these costs to consumer prices is anticipated later in 2025. This anticipated rise in inflation is projected to constrain real wage growth and consequently dampen consumer spending, which has already experienced a notable deceleration. Furthermore, job creation has weakened, partly attributed to more stringent immigration policies that have curtailed labour force growth. Despite expectations that a widening fiscal deficit will provide some demand support in 2026, Fitch forecasts US GDP growth to remain considerably below its long-term trend at 1.6 per cent for the upcoming year.
Eurozone Growth Boosted by Tariff-Related Exports

The upward revision in eurozone growth projections, now at 1.1 per cent, is partly attributed to companies expediting exports to circumvent anticipated US tariffs. This surge in activity, however, is not seen as sustainable for the latter half of 2025, as export momentum is unlikely to maintain its first-half pace. With the consumer recovery also fading, the agency does not foresee significant GDP growth in Europe during the latter part of the year. Nevertheless, fiscal easing in Germany is expected to offer additional support to the economy in the subsequent year.
China's Growth Supported by Fiscal Measures Amidst Softening Domestic Demand

Fitch has also raised China's 2025 growth projection to 4.7 per cent from 4.2 per cent. Exports from China have demonstrated resilience despite the tariff environment, bolstered by a weaker effective exchange rate and reduced export prices which have redirected sales internationally. While fiscal stimulus measures are currently propping up economic growth, there are indications of softening private domestic demand and deepening deflationary risks within the country.
Interest Rate Outlook and Bond Yield Pressures

Looking ahead, Fitch anticipates that the US Federal Reserve will implement two interest rate cuts before the end of the current year, followed by an additional three cuts in 2026. In contrast, the European Central Bank is not expected to enact further policy easing. Concurrently, long-term 30-year government bond yields across major economies, including the US, UK, Germany, and Japan, are experiencing sustained upward pressure, potentially reflecting concerns related to government debt supply.

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How are US tariffs impacting global growth according to Fitch Ratings?

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