Fitch Slash World Growth Forecast Amid US Tariff Chaos

Fitch Ratings has joined a growing chorus of economists in downgrading its global economic outlook, citing the escalating US trade war as a major drag on growth and a key factor in delaying Federal Reserve rate cuts, The Wall Street Journal reports.

In its latest economic outlook update, Fitch warns that the current US administration's global trade war will dampen US and world economic growth, while simultaneously fueling US inflation. This confluence of factors will complicate the Federal Reserve's ability to ease monetary policy.

"The new U.S. administration has started a global trade war that will reduce U.S. and world growth, push up U.S. inflation and delay Federal Reserve rate cuts," Fitch stated in its report.

The ratings agency has revised down its US growth forecast for 2025 to 1.7%, down from a previous estimate of 2.1%. This represents a significant reduction from the growth rates observed in 2023 and 2024, which were closer to 3.0%. Fitch has also lowered its 2026 US growth forecast to 1.5% from 1.7%.

The agency anticipates that fiscal easing measures in China and Germany will partially mitigate the impact of higher US import tariffs. However, growth in the eurozone is still expected to slow this year, while Mexico and Canada are projected to experience technical recessions due to their substantial trade exposure to the US.

Fitch predicts that global growth will decelerate to 2.3% in 2025, well below its trend growth rate and down from 2.4% in 2024. The agency expects this weakened growth to persist into 2026, with a projected rate of 2.2%.

Fitch's downgrades follow similar revisions by the Organization for Economic Cooperation and Development (OECD) and align with a growing number of private-sector forecasts.

The Trump administration's recent escalation of tariffs on Canada, Mexico, and China, coupled with the extension of tariffs on steel and aluminum imports, has intensified fears of a US recession. This unpredictable policy approach has sent financial markets into a downward spiral.

"The size, speed, and breadth of U.S. tariff hike announcements since January is staggering," Fitch noted in its report.

The agency estimates that the effective US tariff rate has already risen to 8.5% from 2.3% in 2024 and is likely to climb further. Fitch assumes that a 15% tariff will be imposed on Europe, Canada, Mexico, and other countries in 2025, while China will face a 35% tariff. This will push the US effective tariff rate to 18% this year, the highest level in 90 years.

"There is huge uncertainty about how far the U.S. will go and our assumptions could be too harsh. But there are also risks of a larger tariff shock including from an escalating global trade war," the report stated.

Fitch predicts that the tariff hikes will lead to higher US consumer prices, erode real wages, and increase company costs. The surge in policy uncertainty is expected to dampen business investment.

With the tariff shock estimated to contribute 1 percentage point to near-term US inflation, the Fed is likely to delay further easing until the end of the year, according to the report.