Overview

• The election of Donald Trump as US President is likely to be consequential for the global economy. Given the high likelihood that he will significantly increase tariffs on imports into the US is, we have made an assumption for forecasting purposes that there will be a 10ppt increase in the implied US average tariff rate starting in mid-2025 and phased in over a year.
• We see tariff increases as having a negative impact on the global economy. This is not only from the direct consequences on trade but also through confidence and financial conditions channels. Rising uncertainty may mean that trade exposed businesses delay capital expenditure plans even ahead of tariff announcements. Last week we also raised our expectations for the level of the US fed funds rate – and now see the Fed easing at a slower pace. The change reflects the recent data flow and the assumed tariff increases. This may constrain the ability of other central banks, in particular emerging markets, to lower rates.
• The other policy shift underway is that the fiscal policy drag expected in 2025 across the AEs is likely to be more moderate. For the US, we maintain our assumption that fiscal policy will be neutral in coming years (but the risk is tilted to it turning stimulatory) but the UK and Japan have announced extra (net) budget spending and the German government attempted to do so (but failed for now). In contrast, while expectations have been high for China to introduce major demand side stimulus, the latest announcement failed to deliver on those hopes.
• We have lifted our growth forecasts for 2024 and 2025 from 3.1 to 3.2% – reflecting recent activity data and the UK/Japan fiscal changes – but lowered our forecast for 2026 to 3.0% from 3.2%. The latter reflects an allowance for US tariffs – while they are assumed to start impacting growth from H2 2025, in year-average terms the impact largely falls in 2026.
• With conflicts still underway in Europe and the Middle East, the possibility of China stimulus at some point, and the unknown timing and extent of US policy shifts, forecast uncertainty is even higher than normal.

For further details, please see The Forward View Global (November 2024)