The United States is headed for a sharp economic slowdown, with Fitch Ratings forecasting GDP growth of just 0.4 per cent year-over-year by the fourth quarter of 2025. "US annual growth in 2025 is expected to remain positive at 1.2% but will slow to a crawl through the year to just 0.4% yoy in 4Q25." Fitch said in a special update to its quarterly Global Economic Outlook on Wednesday. Despite a full-year growth estimate of 1.2 per cent, Fitch anticipates significant deceleration as the year progresses, driven by trade shocks, rising inflation, and mounting policy uncertainty. The average effective US tariff rate has surged to 23 per cent—a level not seen since 1909—following a series of aggressive moves against Chinese imports. "US 'Liberation Day' tariff hikes were far worse than expected. While subsequently paused and replaced with a near-universal 10% rate for 90 days, the shock prompted several rounds of retaliatory moves between China and the US, taking bilateral tariff rates over 100%." Fitch said. "It is hard to predict US trade policy with any confidence, but we now assume the US ETR on China remains above 100% for some time, before falling back to 60% next year. At this stage we are sticking with our assumption of a 15% US ETR on other trade partners, in line with the assumption in the March GEO." Fitch also said the US inflation forecast has been revised up to over 4 per cent, implying "a stagnation in real wages." The resulting inflation is eroding real wages and dragging down consumer sentiment. Business investment and equity markets are also feeling the heat, amplifying downside risks. "Massive policy uncertainty is hurting business investment prospects, equity price falls are reducing household wealth and US exporters will be hit by retaliation." Fitch cautions that, while some tariff revenue may be recycled into the economy via tax cuts, the overall drag on demand and sentiment is likely to persist. Attribution: Amwal Al Ghad English
