KUALA LUMPUR / LONDON / NEW YORK, 10 September 2025 — Fitch Ratings has modestly upgraded its global GDP growth forecast for 2025, citing stronger-than-expected second-quarter data from key economies, but warned that the United States is showing clearer signs of an economic slowdown. The ratings agency stressed that while tariff-related uncertainty has eased following recent U.S. announcements, the impact of higher trade barriers will weigh heavily on global growth in the quarters ahead.
Global Growth Upgraded, But Still Below Trend
Fitch now projects world GDP growth at 2.4% in 2025, an upward revision of 0.2 percentage points from its June Global Economic Outlook (GEO). However, this remains well below the 2.9% growth recorded in 2024 and below long-term trend levels. For 2026, global growth is forecast at 2.3%, slightly higher than earlier expectations.
Among major economies, Fitch raised its China forecast to 4.7% (from 4.2%), reflecting resilient exports and targeted fiscal support, though domestic demand remains fragile. The eurozone outlook improved to 1.1% (from 0.8%), largely due to front-loading of trade before new tariffs, while the U.S. forecast was nudged up only slightly to 1.6% (from 1.5%), with Fitch warning that underlying weakness is now showing in “hard” indicators such as employment and consumer spending.
Tariff Policy Clarity, But Costs Remain High
Fitch’s latest estimates place the average effective U.S. tariff rate (ETR) at 16%, consistent with assumptions made in June. While Canada, Mexico, and Europe face slightly lower rates due to trade arrangements and compliance under USMCA, Asian economies outside China are encountering higher-than-expected tariffs.
“Greater clarity about U.S. tariff hikes does not alter the fact that they are huge and will reduce global growth. And evidence of a slowdown in the U.S. is now appearing in the hard data; it’s no longer just in the sentiment surveys,” said Brian Coulton, Chief Economist at Fitch.
U.S. Economy: Inflation, Jobs, and Consumption Under Strain
Fitch noted that the pass-through from tariffs to U.S. consumer inflation (CPI) has been limited so far, as companies absorbed much of the impact through squeezed profits. However, it expects tariff-related inflationary pressures to build later in 2025, which will erode real wage growth and weigh further on consumer spending—already showing notable signs of deceleration.
The U.S. job market is softening, with slower employment gains compounded by restrictions on immigration, constraining labor force growth. While a widening fiscal deficit is expected to support demand in 2026, Fitch foresees U.S. GDP growth remaining well below trend at 1.6% next year.
China, Eurozone, and Other Key Economies
China’s export resilience, despite U.S. tariffs, has been aided by a depreciating nominal effective exchange rate and falling export prices, helping to redirect sales toward alternative markets. Fiscal easing continues to provide support, though Fitch flagged weakness in private consumption and rising risks of deflationary entrenchment.
In Europe, first-half export strength is unlikely to be sustained. With consumer momentum fading, Fitch expects the eurozone economy to stagnate in the second half of 2025. However, German fiscal easing should provide modest uplift in 2026.
Central Banks and Bond Yields
Fitch believes the Federal Reserve will be compelled to act sooner, cutting interest rates by 25 basis points in September and again in December, followed by three more cuts in 2026. By contrast, the European Central Bank (ECB) looks less likely to lower rates further, narrowing prospects for a euro-dollar rebound after the dollar’s depreciation in the first half of the year.
Meanwhile, long-term government bond yields across the U.S., U.K., Germany, and Japan continue to face upward pressure, reflecting both inflation risks and concerns over heavy supply from debt issuance.
Outlook: Growth Amid Structural Risks
Despite the upgrade in global forecasts, Fitch underscored that the combination of tariff shocks, U.S. slowdown, and deflationary pressures in China presents a challenging environment. While fiscal easing in major economies provides some cushion, global growth in 2025 will remain subdued compared to historical trends, with heightened uncertainty over trade policy and monetary responses shaping investor sentiment.
