Overview

Higher US tariffs have been put in place more quickly than expected and further increases in early April look highly likely. Apart from the direct impacts of tariffs, the elevated uncertainty around US policy will also likely weigh on business investment and potentially consumer activity.

As a result, financial markets have come under stress – particularly US equities, with weak early 2025 economic data for the US also a factor.

For the US, tariff increases are part of a growing fiscal drag, which also includes Federal government spending and job cuts. Tax cuts may still occur – but again there is a lack of clarity – and in any event this is more a 2026 story. As a result, we have lowered our global growth forecasts, driven by downward revisions to the US, Canada and Mexico.

While lower US growth prospects would normally be expected to drag on rest of the world growth, we have not made other major changes at this stage. Key will be how policy in other countries shifts in response to US policy shifts.

This is already evident in Europe, where fiscal policy is moving in a stimulatory direction, with the prospect of large increases in defence spending and a broader relaxation of fiscal rules in Germany. This should provide some offset to the tariff headwinds, initially through positive sentiment and ultimately through demand stimulus.

China’s National People’s Congress also left the official growth target unchanged – at “around 5%”. While the likely extent of policy support remains unclear, we see this as indicating that Chinese authorities will step in to support activity if external factors end up being a material drag. That said, we still expect the combination of growing trade barriers and deeper structural issues, to lead to some moderation in growth in 2025.

Monetary policy settings continue to ease, with the Bank of Canada and European Central Bank again cutting rates this month. The US Fed is currently on pause, but we expect it to start reducing rates later this year and, apart from Japan, some further easing across the other major AE central banks is likely.

Overall, we expect global economic growth, in year average terms, to slow from 3.3% in 2024 to 3.0% in 2025 and 2.9% in 2026, a weak result by recent historical standards.

Risks around any central estimates remain elevated, and weighted to the downside as, based on public pronouncements, the US may announce greater tariff increases than assumed in our forecasts (with retaliatory tit-for-tat escalation beyond that possible).

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