Fitch Upgrades 2025 Global Growth Outlook to 2.4% Despite Signs of U.S. Slowdown

Fitch Ratings has revised its global economic outlook, lifting its 2025 growth forecast to 2.4 per cent, a 0.2 percentage point improvement compared with its June projection.

The credit rating agency said the upgrade reflects stronger-than-expected second-quarter data this year, even as warning signs of an underlying slowdown in the United States economy become clearer.

In its latest global outlook, Fitch also raised its 2026 growth forecast slightly by 0.1 percentage points, projecting expansion at 2.3 per cent. Still, the agency emphasized that growth momentum remains fragile.

According to Fitch, “evidence of slowing growth in the US is now showing up in hard economic data and is no longer only in sentiment surveys.” The agency explained that eurozone growth, which surprised on the upside in early 2025, is unlikely to sustain its momentum. The boost largely came from tariffs imposed on the United States, but Fitch said eurozone exports would not continue at the same pace in the second half of the year.

Weakening consumer spending is another factor weighing on the eurozone outlook. “Fitch does not expect eurozone GDP to expand in the second half of 2025,” the report noted, though it pointed out that fiscal loosening in Germany would provide stronger support to the region’s growth in 2026.

Globally, growth remains on a downward path. Fitch now projects world GDP to expand by 2.4 per cent in 2025, slightly above June’s estimate but sharply lower than the 2.9 per cent forecast made last year.

Among major economies, China’s growth forecast has been raised to 4.7 per cent from 4.2 per cent, reflecting continued resilience in exports despite tariff shocks. The eurozone outlook has also improved, rising to 1.1 per cent from 0.8 per cent, while the U.S. forecast was nudged up to 1.6 per cent from 1.5 per cent.

On trade policy, Fitch said uncertainty has eased following a series of U.S. announcements.

Its latest estimate for the effective U.S. tariff rate is 16 per cent, nearly identical to the June assessment. Mexico and Canada are now facing slightly lower effective tariff rates, while Europe’s rate has also dropped marginally. However, these declines are offset by higher-than-anticipated rates across Asia, excluding China.

“Greater clarity on US tariff hikes does not change the fact that they are huge and will reduce global growth,” said Brian Coulton, Fitch’s chief economist. He added, “The pass-through of this large increase in the effective tariff rate to US inflation has so far been moderate. There is evidence in the US national accounts that the tariff shock has been absorbed partly by downward pressure on corporate profits, but we expect the pass-through to accelerate later this year.”

The agency warned that inflationary pressures tied to tariffs will constrain real wage growth, further weakening consumer spending. “Higher inflation will limit real wage growth and negatively affect consumer spending in the United States, which has already slowed significantly in 2025,” Fitch said. Job creation has also slowed, with migration pressures contributing to labor force growth while straining the broader market.

Looking ahead, Fitch expects the widening U.S. fiscal deficit to provide some support in 2026. “A widening fiscal deficit should support demand in 2026, but we still expect the average annual GDP growth rate in the US to remain well below trend, at 1.6 per cent,” the agency said.

China, meanwhile, has shown resilience in its export sector. “China’s export growth has held up despite the shock of US tariffs,” Fitch observed. “The depreciation of the nominal trade-weighted exchange rate and falling export prices have helped redirect sales abroad.” The agency noted that fiscal easing is lending support to growth, but warned that private domestic demand is weakening and deflationary pressures are becoming more entrenched.

With the U.S. labor market showing more signs of weakness, Fitch expects monetary policy to shift sooner than previously projected. “The weakening labour market in the United States should persuade the Federal Reserve to cut interest rates more quickly than previously expected,” the report said. Fitch forecasts 25-basis-point rate cuts in both September and December, followed by three additional cuts in 2026.

On the eurozone, however, prospects for further monetary easing appear limited. “Another cut from the European Central Bank now seems unlikely,” Fitch said. The agency also expects currency pressures to persist. “We see little prospect of a recovery in the US dollar after its broad depreciation in the first half of 2025,” the report added. 

By fLEXI tEAM