Fitch revises forecasts due to 'trade war tensions'

Fitch has released a special update to its Global Economic Outlook report, which was published last month.

In its statement regarding the matter, the credit rating agency stated that its forecasts for world growth have been sharply lowered in response to the serious escalation in the global trade war.

The statement noted that while the US is expected to maintain positive annual growth of 1.2 percent in 2025, growth is expected to slow throughout the year, reaching only 0.4 percent in the fourth quarter.

The statement also projected that China's growth would fall below 4 percent this year and next, while Eurozone growth would remain well below 1 percent.

It was stated that global economic growth is expected to reach 1.9 percent this year, which would be the weakest growth rate since 2009, excluding the COVID-19 pandemic.

In the report published by Fitch in March, the global economic growth forecast had been 2.3 percent.

INFLATION FORECAST FOR THE US RAISED ABOVE 4 PERCENT

The statement noted that the US "Independence Day" tariffs were much worse than expected, recalling that additional tariffs were paused for 90 days and that retaliations between China and the US have pushed mutual tariff rates above 100 percent.

It was pointed out that the US effective tariff rate has exceeded the assumption made in March, and that it is difficult to predict the country's trade policy.

The statement drew attention to the fact that the tariff increase would significantly affect US-China trade flows, and stated that a negative supply shock in the US could be significant.

In the statement, which provided information that the inflation forecast for the US has been revised to above 4 percent, it was assessed that "Great policy uncertainty is damaging business investment expectations, declines in stock prices are reducing household wealth, and US exporters will be affected by retaliation."

"WE EXPECT INTEREST RATE CUTS"

The statement noted that the Chinese economy grew faster than expected last year, but that net trade accounted for one-third of that growth, indicating that growth will slow sharply.

The statement expressed that a portion of US customs duty revenues is expected to return to the US economy within the next 18 months, including through tax cuts; however, it noted that as the world's two largest economies slow down, spillover effects will be felt over a wide area, and this situation will be reflected in the forecasts.

The statement emphasized that despite the worsening growth outlook, the US Federal Reserve (Fed) is expected to wait until the fourth quarter before implementing interest rate cuts.

Noting that there has been a worrying jump in US household medium-term inflation expectations over the last 2 months, the statement said, "The surprising weakness in the US dollar has created more room for other central banks to ease, and we now expect deeper interest rate cuts from the European Central Bank (ECB) and emerging markets."

The statement noted that lower commodity prices would facilitate faster monetary easing outside the US as growth slows, and reported that the 2025 Brent oil price assumption has been lowered by 5 dollars to 65 dollars.

GROWTH FORECASTS REVISED DOWNWARD

In the report published by Fitch in March, it was projected that the US would grow by 1.7 percent, the Eurozone by 0.7 percent, and China by 4.4 percent this year.

In the credit rating agency's current report, the growth rates projected for this year have been lowered to 1.2 percent for the US, 0.6 percent for the Eurozone, and 3.9 percent for China.

The growth expectation for this year is 0.8 percent for Japan and 1 percent for the United Kingdom.

In the report, which also included forecasts regarding the Turkish economy, it was observed that the growth forecast for the country's economy is 2.5 percent for this year and 3.5 percent for next year.

News Source: 12punto