Fitch upgrades global GDP forecasts but warns of trade uncertainty

The revision follows a recent easing in US-China trade tensions, though the world economy continues to grapple with the aftershocks of the most severe trade war since the 1930s.

Despite the revision, these projections remain significantly below the 2.9 per cent recorded in 2024 and the long-term trend of 2.7 per cent, Fitch said in its June 2025-Global Economic Outlook (GEO). It has attributed the tempered outlook to lingering uncertainties in US trade policy, which continue to dampen global confidence and investment sentiment.

The US GDP forecast for 2025 has been raised to 1.5 per cent, up from 1.2 per cent, as recession risks recede. However, a slowdown in domestic demand and consumption is expected in the second half of the year.

China’s 2025 growth projection has improved to 4.2 per cent from 3.9 per cent, supported by fiscal easing and a weaker renminbi boosting export competitiveness.

Eurozone growth has been upgraded to 0.8 per cent, while Germany faces renewed pressure due to US tariff hikes—especially on autos—but signs of domestic recovery and supportive fiscal policy may help spur growth in 2026.

Fitch’s latest estimate of the US Effective Tariff Rate (ETR) is 14.2 per cent, with expectations it may rise to 18 per cent in coming months, though lower than the 27 per cent projected in April. The resulting policy volatility has contributed to weaker GDP forecasts compared to March.

Rising inventories and a surge in imports in early 2025 suggest that US firms attempted to outpace anticipated tariff increases. While CPI has remained relatively unaffected so far, producer prices and inflation expectations are on the rise, added the outlook.

Market turbulence persists, with equity volatility, a weakening dollar, and rising 30-year Treasury yields reflecting investor caution. The Federal Reserve is expected to remain restrained, with just one rate cut forecast in Q4 2025.

Meanwhile, the ECB is expected to further reduce rates to 1.75 per cent in September as wage and price disinflation continue across the euro area. Fitch has also raised its 2025 oil price assumption by $5 to $70 per barrel, citing ongoing market volatility and inflationary risks.

ALCHEMPro News Desk (SG)