Quotes from Ken Wattret, global economist at S&P Global Market Intelligence: 

“While the acute near-term risk of a negative feedback loop of financial market turmoil and recession has diminished, the chronic problems of US policy volatility, related uncertainties and negative economic spillovers are set to linger.

“Trade tensions and related uncertainties point to continued turbulence in markets. Corrections in equity prices were pronounced and widespread following the initial announcement of reciprocal tariffs on April 2. While the subsequent pause on April 9 led to strong initial rebounds, market conditions remain choppy, and risk aversion is elevated. Given growing concern over a possible waning of foreign appetite for US Treasurys, the jump in yields in early April was an alarming sign.  

“We have cut our global growth forecasts for 2025 and 2026 in April’s update, reflecting the issues above. Our annual global real GDP growth forecast for 2025 has been lowered from 2.5% to 2.2%. Next year’s global real GDP growth forecast has been reduced from 2.7% to 2.4%. In both years, projected global growth would be the weakest since the global financial crisis of 2008–09, excluding the COVID-19 pandemic. Risks are to the downside.”

Key highlights from this analysis:

Europe:

  • The Eurozone annual real GDP growth forecasts for 2025 and 2026 now stand at 0.7% (down from 0.9%) and 1.1% (down from 1.4%), respectively. Higher-than-expected tariffs on exports to the US have led us to lower our growth forecasts for the region.
  • Our annual real GDP growth forecasts for Germany have been lowered to zero (down from 0.3%) in 2025 and 1.2% (down from 1.5%) in 2026. Similar downward adjustments to our annual real GDP growth forecasts for 2025 and 2026 have been made for France and Italy. While we still expect service-led economies such as Spain and Portugal to remain the best performers in the eurozone, sustained currency strength could lead to a lower growth contribution from the tourism sector.
  • S&P Global Market Intelligence now expects the European Central Bank (ECB) to cut rates by 25 basis points in its April and June meetings. March’s eurozone inflation data showed a notable easing in service price inflation, which fell from 3.7% to 3.4%, its lowest level since June 2022, although the decline was partly due to the timing of Easter this year compared to 2024. While we maintain our 2% forecast for the ECB’s terminal deposit rate, the risks to this forecast are increasingly on the downside.
  • We have cut our annual real GDP growth forecasts for the UK to 0.5% in 2025 and 0.7% in 2026. Both forecasts sit below market consensus expectations and the latest UK government projections. The economy faces mounting domestic and external pressures leading to weak business sentiment, with employment and investment likely to be hindered by rising payroll costs from April 2025 and the rise in US tariffs.
  • The Bank of England’s Monetary Policy Committee (MPC) is likely to put aside concerns of still elevated services inflation and earnings growth and accelerate the pace of interest rate cuts in 2025. The MPC is forecast to deliver three rate cuts of 25 basis points in the May, August and November meetings, lowering the Bank Rate to 3.75% by end-2025.
  • Sweden’s Riksbank held its policy rate at 2.25% in March, while signaling no more rate cuts, in line with our expectations. The Norges Bank is forecast to cut rates by 25 basis points at each of the May, September and December policy meetings to take the policy rate down to 3.75% at the end of 2025. However, there is a high degree of uncertainty over the exact timing of the next rate cuts owing to still above-target underlying inflation and strong earnings growth.
  • The EU countries of Central Europe and the Balkans (CEB) face higher tariffs on their exports to the US. Higher tariffs on exports to the US and related uncertainties have led to a reduction of our GDP growth forecasts for CEB countries in our April update. Our projection for the four largest economies of CEB — Czechia, Hungary, Poland and Romania — has been revised from 2.8% to 2.6% for 2025 and from 3.2% to 3.0% for 2026. In our May forecast update, which covers a wider range of countries, similar revisions are likely in most of the smaller CEB economies of the EU.

Middle East and North Africa:

  • Robust domestic demand in Gulf Cooperation Council (GCC) countries points to steady growth in 2025, although external risks are significant. Domestic economic conditions in Saudi Arabia, the UAE and Qatar remain in solid shape. The growth outlook for 2025 and 2026 has been slightly reduced in April, however, given the expected global growth slowdown related to the US administration’s trade policies.
  • Falling oil prices are the main negative effect for the region’s oil producers of tariff-related turbulence. While the UAE and Qatar are likely to be able to weather a sustained period of lower oil prices, countries like Oman, Bahrain and Iraq will likely come under financing pressure if lower prices persist.
  • Saudi Arabia’s fiscal deficit is expected to widen in 2025. More borrowing is likely, which the Saudi government could still afford, given the moderate government debt-to-GDP ratio of 30% at the end of 2024.
  • The outlook for North Africa’s non-oil producers has not significantly worsened following the tariff announcements. The combined direct and indirect impact of US tariffs on Egypt, Tunisia and Morocco has not led to a significant deterioration in their growth outlooks for 2025 and 2026. Global recession risks are a potential concern.

Americas:

  • S&P Global Market Intelligence forecasts 1.3% annual real GDP growth for the US in 2025 followed by 1.5% growth in 2026 and 2027. The markdown to growth reflects weaker momentum in the first quarter of 2025 and fallout from President Trump’s announced tariffs. Economic indicators reported over the last several weeks led us to lower our estimate of quarter-over-quarter annualized real GDP growth in the first quarter by 1.2 percentage points to just 0.2%. This, by itself, accounts for one-half of the 0.6 percentage-point reduction in our forecast of annual real GDP growth this year.
  • Core PCE inflation, on a four-quarter basis, is forecast to rise to a tariff-induced peak of 4.0% in the second half of this year. This is expected to rule out further rate cuts through most of 2025. Once the easing cycle resumes, however, which we forecast from December 2025, the Fed is forecast to lower rates faster as the unemployment rate is projected to be higher than in prior forecasts. Cuts of 25 basis points are expected at three consecutive meetings through March 2026 followed by a slowing pace over the rest of 2026. The forecast trough for the target range is 2.75%-3.00%, a little below our estimate of the long-run “neutral” range.
  • Forecasts for Canada’s annual real GDP growth in 2025 and 2026 both edged up by 0.1 percentage point to 0.9% and 1.1%, respectively. To reflect the latest merchandise trade data, we raised our forecasts for growth in goods imports and exports during the first quarter of this year, with net trade expected to contribute to overall GDP growth during the quarter. We continue to forecast real GDP contraction in mid-2025, although near-term growth prospects have improved owing to stronger pre-tariff activity.
  • While our annual forecasts for inflation are broadly unchanged, there have been significant shifts in the quarterly profile. February’s headline consumer price inflation rate exceeded expectations, rising to 2.6%. Inflation is likely to remain elevated in March, with the resumption of the federal tax rate. We revised up our forecast for inflation in the first quarter of 2025 by half a percentage point accordingly. However, the removal of the carbon tax from April implies lower inflation in the second quarter. Annual average inflation forecasts for 2025 and 2026 remain at 2.2% and 2.3%, respectively.
  • Our near-term growth forecasts for Latin America have improved in April’s update owing to a change in our assumptions for US tariffs on imports from Mexico. We now project Latin America’s 2025 annual real GDP growth at 1.8%, up from 1.6% in March. In March, we assumed a 25% universal tariff on US imports from Mexico to take effect in the second quarter of this year.
  • We have raised our forecast for Mexico’s 2025 annual real GDP growth to 0.2%, compared with a projected 0.9% annual contraction in the March forecast round.

Asia-Pacific:

  • S&P Global Market Intelligence’s annual real GDP growth forecasts for mainland China for 2025 and 2026 have been lowered to 3.8% and 3.7%, respectively. This reflects higher-than-assumed US tariffs on Chinese imports, China’s countermeasures, and the implementation of universal tariffs by the US. Front-loading of activities to avoid future tariff increases continued to bolster mainland China’s exports in the first quarter of 2025, which grew by 5.8% year over year, with a notable 12.4% increase in March. Our consumer price inflation forecasts have been lowered to 0.4% in 2025 and 1.0% in 2026.
  • Japan's real GDP growth forecasts for 2025–27 have been revised down in April’s update. Although a proposed 24% reciprocal tariff on US imports of Japanese goods has been paused, the higher-than-expected US tariff increases are projected to shrink exports and suppress fixed investment, reducing projected annual real GDP growth to 0.8% in 2025, 0.5% in 2026 and 0.7% in 2027. For 2025 and 2026, our growth forecasts have been lowered by 0.2 percentage point each compared to our March figures. While a September policy rate hike to 0.75% remains our base case, Tokyo's preliminary inflation data for March showed elevated core inflation. Higher inflation and recent survey data on output prices point to upward pressure on prices over the coming months, these factors could prompt the Bank of Japan to tighten policy earlier than predicted.
  • Our annual real GDP growth forecasts for Asia-Pacific excluding Japan and mainland China now stand at 3.9% for 2025 and 4.2% for 2026, 0.2 and 0.1 percentage point lower, respectively, than our March forecasts. Additional downward revisions are likely in coming months if the exceptionally high policy uncertainty persists.

Following front-loaded policy rate cuts in early 2025, we expect additional policy easing in 2025 and 2026. As tariffs and trade uncertainties substantially elevate the risks to the region’s export-driven economies, we expect that central banks across Asia-Pacific excluding Japan and mainland China will be willing to adopt more aggressive monetary policy easing through 2025 and 2026 compared with our March forecast. Following additional 25-basis-point policy rate cuts by the Reserve Bank of India and the Philippines’ central bank announced in April, we expect the central banks of Australia and South Korea to begin their easing policy cycles in May.

 

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Kriti Khurana
Senior Communications Manager
S&P Global Market Intelligence
Gurugram, India
kritikhurana@spglobal.com