Central banks in Europe and emerging markets are poised to deliver "deeper rate cuts" in 2025 than previously expected, according to Fitch Ratings, as global economic conditions deteriorate under the weight of an intensifying trade war and softening demand. In its latest Global Economic Outlook update, Fitch said the surprisingly sharp weakening of the US dollar in recent weeks has created space for more aggressive monetary easing outside the United States. "... we now expect deeper rate cuts from the ECB and in emerging markets," the agency noted in a special update to its quarterly Global Economic Outlook on Wednesday, even as it maintained its projection that the US Federal Reserve will hold off on rate cuts until the fourth quarter of 2025. The pivot toward looser monetary policy in much of the world reflects a worsening macroeconomic picture. Fitch now sees global GDP growth falling below 2 per cent in 2025—the weakest since 2009, excluding the pandemic years. While headline inflation is easing in many advanced economies, tariff-driven price increases—particularly on imports—are complicating central bank decisions, especially in the US. By contrast, many emerging markets and the eurozone are seeing mounting disinflationary pressures, giving policymakers more leeway to stimulate demand. Fitch also revised down its Brent oil price forecast to $65 per barrel, which could further ease cost pressures and support more accommodative policy stances. Europe, in particular, is experiencing a prolonged period of weak growth. The eurozone economy is projected to expand well below 1 per cent this year, with Germany, France, and Italy facing subdued investment and trade drag. With inflation falling closer to target, the European Central Bank is expected to respond with more substantial rate reductions to revive economic momentum. Emerging markets, many of which had previously maintained high real interest rates to battle inflation and currency volatility, are also seen shifting course. Fitch cited "broader global spillovers" from the US-China trade war, which are hitting export-driven economies particularly hard. The combination of policy uncertainty, falling global trade volumes, and weakening investor sentiment is leading to more dovish recalibrations among central banks from Latin America to Southeast Asia. Still, the path forward remains highly uncertain. "It is hard to predict US trade policy with any confidence," Fitch warned, noting that a sustained period of elevated tariffs and geopolitical tension could yet derail fragile recoveries in emerging markets and weigh further on European growth prospects. Attribution: Amwal Al Ghad English
