Credit rating agency Fitch Ratings slashed on Tuesday its global growth forecast to 2.3% for this year, citing broad-based reductions and also uncertainty related to "how far" the United States will go concerning the latest trade measures.
The New York-based agency lowered the gross domestic product (GDP) for this year by 0.3 percentage points from its latest assessment, saying it is "well below the trend" and down from 2.9% in 2024. It also suggested the growth would remain weak at 2.2% next year.
Fitch, meanwhile, also significantly cut U.S. growth expectations.
"The new U.S. administration has started a global trade war that will reduce U.S. and world growth, push up U.S. inflation and delay Federal Reserve (Fed) rate cuts," Fitch said.
"We have cut both our U.S. 2025 growth forecast to 1.7% from 2.1% in the December 2024 Global Economic Outlook (GEO) and our 2026 forecast to 1.5% from 1.7%. These rates are well below trend and down from almost 3% annual growth in 2023 and 2024," it added.
The revision for the global outlook comes a day after the Organization for Economic Cooperation and Development (OECD) also lowered its global economic growth forecast for this year and next, warning that tariff increases would reduce growth and increase inflation, including in the U.S.
"Fiscal easing in China and Germany will cushion the impact of higher U.S. import tariffs, but growth in the eurozone this year will still be a lot weaker than forecast in the December GEO," Fitch said.
Fitch underlined that Mexico and Canada will experience technical recessions.
"Mexico and Canada will experience technical recessions given the scale of their U.S. trade exposures, and we have cut their annual 2025 forecasts by 1.1pp (percentage points) and 0.7pp respectively."
Moreover, the report said that tariff hikes would result in higher U.S. consumer prices, reduce real wages, and increase companies' costs, with the surge in policy uncertainty also taking a toll on business investment.
Citing that tariff shock is estimated to add one percentage point to U.S. near-term inflation, Fitch said it believed the Fed would delay further easing until the last quarter of 2025.
"We now expect the Fed to cut just once this year, but then expect three more cuts in 2026 as the economy slows and tariff levels stabilize," it said.
Meanwhile, the forecast for the eurozone's 2025 growth was revised down from 1.3% to 1.1%. Fitch also expected China's economy to expand by 4.4% this year and 4% in 2026.
The report, which included estimates for the Turkish economy, stated that expectations remained unchanged as forecasts for this year's growth at 2.6% and for next year at 3.5% were maintained.
