According to Fitch, the new U.S. administration's aggressive trade policies are driving inflation higher and delaying Federal Reserve rate cuts, creating a challenging environment for global markets.
Fitch Ratings has slashed its global economic growth forecast for 2025, citing the impact of an escalating U.S. trade war. The agency now expects world growth to slow to 2.3% in 2025, down from a previous forecast of 2.9% for 2024, with further deceleration to 2.2% in 2026.
According to Fitch, the new U.S. administration's aggressive trade policies are driving inflation higher and delaying Federal Reserve rate cuts, creating a challenging environment for global markets.
The agency has revised its U.S. growth projections downward, cutting the 2025 forecast from 2.1% to 1.7% and the 2026 forecast from 1.7% to 1.5%. These figures mark a sharp decline from the near-3% annual growth seen in 2023 and 2024.
Fitch has described the scale and speed of U.S. tariff hikes since January 2025 as “staggering.” The effective tariff rate (ETR) has surged from 2.3% in 2024 to 8.5% currently and is expected to reach 18% by the end of the year, marking the highest rate in 90 years. The agency assumes a 15% tariff will be imposed on Europe, Canada, and Mexico, while tariffs on China will rise to 35%.
These tariff increases are expected to reduce GDP by about 1 percentage point in the U.S., China, and Europe by 2026. The resulting higher consumer prices, lower real wages, and increased business costs will add further strain on the economy.
Fitch warns that the U.S. administration’s push for import substitution—aimed at boosting domestic manufacturing and reducing the trade deficit—could further fuel global economic uncertainty.
The agency also warns of significant uncertainty regarding the extent of U.S. tariff measures and potential retaliatory actions. Export-dependent economies in East Asia and Europe could be particularly hard hit, with global supply chains facing disruptions.
Limited Impact on MENA, But Risks Remain
According to a release from Fitch Solutions’ research unit earlier this week, countries in the MENA region are expected to remain largely unaffected by direct tariffs from the Trump administration.
While exports from the region are not likely to be significantly impacted, the report warns of potential consequences for oil prices and inflation. More debt-laden emerging markets in the region are anticipated to feel the effects more keenly.
Specifically, Egypt is expected to face particular challenges as the dollar strengthens, which will put downward pressure on currencies such as the Egyptian pound (EGP).
