Effects of US policies adding downside risks to economy: S&P Global

As the tariffs that took effect recently push the US effective tariff rate to more than 18 per cent—about eight times the 2024 rate of 2.3 per cent, inflation in the country may rise, the rating agency cautioned.

At the same time, parts of the tax and spending bill and lower interest rates will boost US economic growth in next year. A rebound in housing and non-residential investment amid lower interest rates will likely add to growth as next year progresses, S&P Global said in a release.

Newly implemented US trade, immigration and fiscal policies continue to cloud the outlook for many borrowers, with historically high tariffs and significantly diminished labour supply adding downside risk to an economy already slipping to below-trend growth, it noted.

The US economy is weaker than the headline 3-per cent real gross domestic product (GDP) growth reported for the second quarter. The annualised growth rate in the first half was 1.2 per cent— materially weaker than the 2.5 per cent last year.

All of this, combined with the effect of tariffs on the economic activity, will likely result in weaker consumer, business, and federal government spending in the second half of the year.

“We affirm our baseline forecast from June that economic growth will slow to 1.1 per cent year on year by the fourth quarter before moving back up to a trend-like 1.9 per cent by end of 2026,” S&P Global Ratings said.

The economic consequences of a diminished labour force are becoming increasingly visible in the United States. Net immigration is falling fast, self-deportation is rising and visa issuance has tumbled.

The workforce has reduced by 1.2 million people this July from last summer. While half of that number is due to an aging population, the other half likely reflects changes in immigration policy.

The tariffs that took effect this month will further erode consumer purchasing power, the rating agency added.

ALCHEMPro News Desk (DS)