Fitch Ratings lowers world growth forecast due to escalation in global trade war

New Delhi [India], April 17 (ANI): Fitch Ratings has sharply lowered its forecasts for world growth in response to the severe escalation in the global trade war, lowering world growth in 2025 by 0.4pp and China and US growth by 0.5pp, according to its quarterly Global Economic Outlook report.
The report added that the US annual growth in 2025 is expected to remain positive at 1.2 per cent but will slow to a crawl through the year to just 0.4 per cent y-o-y in fourth quarter of 2025. China's growth is forecast to fall below 4 per cent this year and next while eurozone growth will remain stuck well below 1 per cent, the report said.
As per the report, the world growth is projected to fall below 2 per cent this year, which would be the weakest since 2009, excluding the pandemic.
The Fitch ratings said that the US 'Liberation Day' tariff hikes were far worse than expected. While subsequently paused and replaced with a near-universal 10 per cent rate for 90 days, the shock prompted several rounds of retaliatory moves between China and the US, taking bilateral tariff rates over 100 per cent, the report added.
The US average effective tariff rate (ETR) has risen to 23 per cent, the highest since 1909 and well above the 18 per cent we assumed in March. It is hard to predict US trade policy with any confidence, but we now assume the US ETR on China remains above 100 per cent for some time, before falling back to 60 per cent next year, the report added.
At this stage, we are sticking with our assumption of a 15 per cent US ETR on other trade partners, in line with the assumption in the March GEO, the report added.
"Tariff escalation will hit US-China trade flows dramatically. With limited scope for import substitution or trade diversion in the near term, the adverse supply shock in the US could be marked. Our US inflation forecast has been revised up to over 4 per cent, implying a stagnation in real wages," the report said.
Massive policy uncertainty is hurting business investment prospects, equity price falls are reducing household wealth and US exporters will be hit by retaliation, the report said.
China's economy has grown faster than expected over the past year, but net trade has accounted for a third of GDP growth. The report says that this will slow sharply as exporters struggle to redirect sales in the near term.
"China's housebuilding slump and deflationary pressures are continuing, but we expect fiscal and monetary policy easing to be stepped up," the report added.
The Fitch Ratings further said that it also expects some additional US tariff revenues to be recycled back into the US economy over the next 18 months, including through tax cuts.
But as the world's two largest economies slow, spillovers will be felt far and wide, and this is reflected in our broad-based downward forecast revisions, the report added.
Fitch still expects the Federal Reserve to wait until the fourth quarter of 2025 before cutting rates despite the deteriorating US growth outlook.
It said, import prices are set to rise sharply and there has been an alarming jump in US households' medium-term inflation expectations over the past two months.
"However, the surprising weakening of the US dollar has created more space for other central banks to ease and we now expect deeper rate cuts from the ECB and in emerging markets. Lower commodity prices - we have lowered our 2025 Brent oil price assumption by USD5 to USD65 - will also facilitate a faster pace of monetary easing outside the US as growth slows," the report added. (ANI)