Expect ‘deep cuts’ to global growth: Fitch | Australian Markets

Respected credit scores company Fitch Ratings has sharply lowered its forecasts for global growth, as escalating trade tensions weigh down on the growth prospects of the world’s two main economies.

In a particular replace to its quarterly Global Economic Outlook (GEO), issued in March, Fitch has cut its world growth forecast by 0.4 share factors.

World growth is projected to fall under 2% this 12 months – outdoors of the Covid pandemic, the weakest growth price since 2009, within the wake of the global financial disaster.

Both China and the US, caught in an escalating trade battle, will lose 0.5 share factors, Fitch predicts.

While US annual growth this 12 months is anticipated to stay optimistic at 1.2%, this “will slow to a crawl”, Fitch says, hitting 0.4% year-over-year in 4Q25.

Meanwhile, China, which averaged an enviable 7% GDP growth all through the 2010s, is forecast to fall under 4% this 12 months.

The Eurozone’s sluggish growth will persist, predicted to be nicely under 1%.

“US ‘Liberation Day’ tariff hikes were far worse than expected,” Fitch wrote.

“While subsequently paused and replaced with a near-universal 10% rate for 90 days, the shock prompted several rounds of retaliatory moves between China and the US, taking bilateral tariff rates over 100%.”

The US average efficient tariff price (ETR) has risen to 23%, the best since 1909; this, Fitch forecasts, will fall back to 15% US ETR on different trade companions, consistent with its March GEO.

Overall, Fitch sees the tariff escalation hitting US-China trade flows “dramatically”, driving up inflation risk.

“With limited scope for import substitution or trade diversion in the near term, the adverse supply shock in the US could be marked. Our US inflation forecast has been revised up to over 4%, implying a stagnation in real wages.”

“Massive policy uncertainty is hurting business investment prospects, equity price falls are reducing household wealth and US exporters will be hit by retaliation.”

China’s better-than-expected growth over the previous 12 months, largely pushed by web trade (which contributes about one-third of the nation’s GDP), will possible gradual sharply, because it and the US interact in an efficient trade embargo.

Beyond the problem of redirecting trade from its largest trading accomplice, the US – which represents round 16% of its whole global exports – China can also be going through an ongoing housing hunch and deflationary pressures. However, in response, Fitch expects policymakers in Beijing to step up fiscal and financial coverage easing.

“[As] the world’s two largest economies slow, spillovers will be felt far and wide, and this is reflected in our broad-based downward forecast revisions,” Fitch concluded.