Introduction
In their updated Global Economic Perspectives report, Fitch Ratings analysts highlighted that the execution of tariff measures has gone through temporary suspensions and escalations in retaliation, fueling global uncertainty with China and the United States at its epicenter.
US Economic Growth Projections
As a result of this environment, Fitch has revised its US economic growth projection for this year to 1.2%, down from the previously estimated 1.7%. For next year, they have also lowered their forecast to 1.3% from the earlier prediction of 1.5%.
These projections fall short of the recent adjustments made by the Federal Open Market Committee (FOMC) of the Fed, which estimated 1.7% growth for this year and 1.8% for the following year.
The International Monetary Fund (IMF) had initially projected a higher growth rate for the US, estimating 2.7% for this year in its January update. However, the IMF is also expected to revise its forecast downward during the upcoming Spring Meetings in Washington, D.C., as anticipated by Managing Director Kristalina Georgieva.
Tariff Revenue and Economic Impact
Fitch’s analysts explained that some tariff revenues collected by the US will be reinvested in the economy over the next 18 months, potentially through tax cuts. They also noted that tariffs imposed by the US during the “Liberation Day” event exceeded all expectations and scenarios, making them the highest since 1909.
China’s Economic Growth and Trade Collapse
The report emphasized that China’s economy has grown faster than expected over the past year, but noted that trade has accounted for one-third of this momentum. This implies a significant slowdown as exporters shift their markets in the short term.
Fitch now forecasts China’s GDP growth to be 3.9% for this year, far below their earlier estimate of 4.4% in March and also lower than the 4.6% projected by the IMF in January. Chinese authorities have set a target of “around 5%” GDP growth for this year.
Global Economic Impact of US and China’s Slowdown
In response to the recent and severe escalation of the global trade war, Fitch drastically reduced its worldwide growth projections. They now anticipate global GDP growth of 1.9% for this year, down from the earlier estimate of 2.3%, and project a further slowdown to 2% for the following year.
This year’s growth projection, excluding the pandemic year, is now the lowest since 2009. As the world’s two largest economies decelerate, repercussions will be widely felt.
Emerging economies are expected to grow by 3.5% this year and 3.4% next year, marking three consecutive years of deceleration since reaching 5% in 2023. Among the more advanced emerging economies, often referred to as BRIC (Brazil, Russia, India, and China), India stands out with a projected growth rate of 6.4% this year, similar to the estimate for 2026.
Brazil is expected to grow by 1.8% this year and next, far from the 3.4% achieved in 2024. Its isolationist stance places it outside the global slowdown. Russia, with a growth rate of 1.8% this year and 1% for 2026, also lags behind its peak of 4.3% in 2024.
Inflation Rebound and Monetary Policy
The tariff escalation, according to Fitch experts, will drastically affect trade flows between the US and China, negatively impacting the availability of goods in the world’s largest economy.
Consequently, Fitch anticipates that the US National Price Index will show a variation of 4.3% by year-end, similar to the inflation shock observed in March 2021 following the global pandemic. This represents an increase from the current 2.4% recorded in March of this year.
This inflationary rebound implies that the FOMC will likely wait until the fourth quarter of the year to cut interest rates, despite deteriorating growth expectations. The FOMC’s dual mandate of maintaining maximum employment and price stability requires careful calibration of monetary policy amidst inflationary pressure.
Mexico’s Economic Contraction
Regarding Mexico, Fitch’s analysts explained that investor sentiment and predictions are being negatively affected by uncertainty, which will continue to impact exporters.
The Global Economic Perspectives report is an updated version of the regularly released quarterly report, focusing solely on the impact of US tariffs on global growth prospects without delving deeper into individual countries.
Fitch has once again adjusted its Mexican GDP growth expectation, now predicting a contraction of 0.4% for this year and only “modest growth” of 0.8% for 2026, as the economy absorbs tariffs and the slowing US economy.
This revised forecast is 1.1% lower than their December estimate of 1.5%.
