Overview

• As expected, the US increased import tariffs in early August. The overall increase was smaller than had been threatened, and various trade deals meant that some tariff rates will decline (e.g. for autos from the EU and Japan). Financial markets largely took the changes in their stride, in contrast to the turmoil in April. Higher tariffs are a negative for the global economy, but with some of the extreme tariff scenarios now ruled out, downside growth risks have receded. That said, uncertainty remains high – there are trade deals yet to be fully detailed and formalised, and further sectoral tariffs are expected.
• Tariffs have led to large swings in trade data – as activity was brought forward – and this has also been reflected in GDP. US GDP bounced back in Q2 (after a small fall in Q1), as did GDP in Japan, while growth in the Euro-zone eased as exports started to unwind. Across the major advanced economies (except Canada which is yet to report), Q2 GDP was 0.1- 0.2ppts higher than we expected, leading to upward forecast revisions for 2025. Broadly, however, the outlook is unchanged – tariffs and other factors are weighing on growth, but there should be improvement in 2026 and 2027 as tariff impacts ease and due to more supportive fiscal policy (US and Eurozone) and the lagged impact of monetary policy easing (ex. Japan).
• In China, part of the strength in activity in the first half of the year was due to transitory policy support; this was evident in the July data with retail sales growth recording a clear slowdown, while the contraction in the real estate sector is continuing. As neither of these developments were unexpected, our forecasts for China are unchanged this month.
• A clear slowdown in US job creation has raised expectations of a Fed rate cut, with markets expecting a September easing. However, the unemployment rate – the main number to look at according to the Fed Chair – is still tracking sideways and inflation remains elevated (and likely to move higher). This makes for a challenging environment for the Fed. How political pressure affects decision making is also uncertain. For the other major central banks, we expect some further rate reductions (ex. Japan), but the ECB is close to the end of its rate cutting cycle (if baseline expectations hold).
• Our global growth forecasts are unchanged, with growth of 3.1% expected this year, and 2.9% in 2026 before some improvement in 2027. On a quarterly basis, growth is expected to trough in H2 this year, before improving in 2026. These rates of growth are relatively weak by the standards of recent decades.

For further details, please see The Forward View Global (August 2025)