World growth slows as US trade war fuels inflation, delays Fed rate cuts

News Image

By MG News | March 19, 2025 at 12:14 PM GMT+05:00

0:00

March 19, 2025 (MLN): The new US administration has started a global trade war that will reduce US and world growth, push up US inflation, and delay Federal Reserve rate cuts.

"We have cut both our US 2025 growth forecast to 1.7% from 2.1% in the December 2024 Global Economic Outlook (GEO) and our 2026 forecast to 1.5% from 1.7%", according to Fitch Ratings.

These rates are well below trend and down from almost 3% annual growth in 2023 and 2024.

Fiscal easing in China and Germany will cushion the impact of higher US import tariffs, but growth in the eurozone this year will still be a lot weaker than forecast in the December GEO.

Mexico and Canada will experience technical recessions given the scale of their US trade exposures, and we have cut their annual 2025 forecasts by 1.1pp and 0.7pp respectively.

"We expect world growth to slow to 2.3% this year, well below the trend and down from 2.9% in 2024", Fitch Ratings added.

This is a downward revision of 0.3pp and reflects broad-based reductions in developed and emerging economies. Growth will remain weak at 2.2% in 2026.

The size, speed, and breadth of US tariff hike announcements since January is staggering.

The US effective tariff rate (ETR) has already risen to 8.5% from 2.3% in 2024 and is likely to rise further. Our latest economic forecasts assume a 15% ETR will be imposed on Europe, Canada, Mexico, and others in 2025, and 35% on China.

This will push the US ETR to 18% this year before moderating to 16% next year as the ETR in Canada and Mexico falls to 10%. This would be the highest rate for 90 years.

There is huge uncertainty about how far the US 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.

Moreover, the US administration has set out an import substitution agenda – aimed at boosting US manufacturing and reducing the trade deficit – which it believes can be achieved with higher tariffs.

Tariff hikes will result in higher US consumer prices, reduce real wages, and increase companies’ costs, and the surge in policy uncertainty will take a toll on business investment.

Retaliation will hit US exporters. Export-oriented global manufacturers in East Asia and Europe also will be affected. Modelling suggests tariff increases will reduce GDP by about 1pp in the US, China, and Europe by 2026.

Germany’s recent pivot to fiscal stimulus will do a lot to cushion the blow and will allow its economy to recover modestly in 2026. More aggressive policy easing will also help to offset the impact in China

With the tariff shock estimated to add 1pp to US near-term inflation, we believe the Fed will delay further easing until 4Q25.

"We now expect the Fed to cut just once this year, but then expect three more cuts in 2026 as the economy slows and tariff levels stabilize", Fitch Ratings further noted.

Copyright Mettis Link News

Related News

Name Price/Vol %Chg/NChg
KSE100 130,686.66
280.01M
0.26%
342.63
ALLSHR 81,305.25
897.01M
0.35%
281.26
KSE30 39,945.45
114.02M
0.09%
37.19
KMI30 190,698.05
148.61M
0.61%
1163.05
KMIALLSHR 55,074.15
495.43M
0.53%
290.50
BKTi 34,568.40
28.73M
-1.07%
-372.33
OGTi 28,739.35
22.59M
1.57%
443.29
Symbol Bid/Ask High/Low
Name Last High/Low Chg/%Chg
BITCOIN FUTURES 110,390.00 110,965.00
109,200.00
105.00
0.10%
BRENT CRUDE 68.92 69.00
68.32
-0.19
-0.27%
RICHARDS BAY COAL MONTHLY 97.50 0.00
0.00
-0.75
-0.76%
ROTTERDAM COAL MONTHLY 109.80 109.80
109.80
0.80
0.73%
USD RBD PALM OLEIN 998.50 998.50
998.50
0.00
0.00%
CRUDE OIL - WTI 67.29 67.50
66.65
-0.16
-0.24%
SUGAR #11 WORLD 15.84 15.90
15.44
0.26
1.67%

Chart of the Day


Latest News
July 03, 2025 at 04:00 PM GMT+05:00

PKR strengthens 9 paisa against USD


July 03, 2025 at 03:54 PM GMT+05:00

BML Board authorizes CEO to execute deposit deal


July 03, 2025 at 03:38 PM GMT+05:00

Pakistan reaffirms reform, partnership goals at FFD4


July 03, 2025 at 02:53 PM GMT+05:00

PM reviews progress on cashless economy plans


July 03, 2025 at 02:12 PM GMT+05:00

Ghani Global secures SECP approval for share issuance



Top 5 things to watch in this week

Pakistan Stock Movers
Name Last Chg/%Chg
Name Last Chg/%Chg