GDP forecasts for U.S., world drop, inflation to rise, thanks to trade war.

The outlook for global growth is dimming thanks to the trade war launched by the U.S., which will weigh on its economy, and the rest of the world, says Fitch Ratings.  

In a new report, the rating agency cut its forecast for world GDP growth to 2.3% this year, amid weaker expectations for the U.S. economy in both 2025 and 2026. 

“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 rate cuts,” Fitch said.

For the U.S., the firm now expects just 1.7% growth this year, down by 0.4 percentage points from its previous forecast — with growth now seen slowing even further to 1.5% in 2026. 

“These rates are well below trend and down from almost 3% annual growth in 2023 and 2024,” it said, citing the impact of rising U.S. protectionism.

“Tariff hikes will result in higher U.S. consumer prices, reduce real wages, and increase companies’ costs, and the surge in policy uncertainty will take a toll on business investment,” Fitch said — while retaliation by other countries will hit U.S. exporters too.

“Modelling suggests tariff increases will reduce GDP by about 1 percentage point in the U.S., China, and Europe by 2026,” it said.

Indeed, the global economy is seen staying weak next year, with GDP growth slipping to 2.2%.

The trade war will also spark recessions in both Canada and the U.S., Fitch said — reducing its 2025 growth forecasts for Canada and Mexico by 0.7 points and 1.1 points, respectively.

The outlook for Europe is also now weaker, Fitch said, despite expectations of fiscal easing in Germany, and China. 

“Germany’s recent pivot to fiscal stimulus will do a lot to cushion the blow and will allow its economy to recover modestly in 2026. More aggressive policy easing will also help to offset the impact in China,” it said.

U.S. monetary policy will also be affected.

“With the tariff shock estimated to add one percentage point to U.S. near-term inflation, we believe the Fed will delay further easing until [the fourth quarter of 2025],” Fitch said. 

“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.

The revised outlook is subject to “huge uncertainty,” the firm acknowledged.

“Our assumptions could be too harsh. But there are also risks of a larger tariff shock including from an escalating global trade war,” it warned.