Interim Economic Outlook - March 2025

The US is escalating its global trade war more quickly and aggressively than we expected.

Where we previously anticipated a gradual phasing in of tariffs from later in the year, the US has cited emergency powers to already move forward with tariffs on major trading partners like China, Canada and Mexico. We expect these to escalate further in the coming months and for blanket tariffs on all European imports to come into effect in Q2. Steel and aluminium tariffs are also already in effect and the US will impose extra restrictions on major trading partners in Asia from Q3.

This translates to a cumulative 0.4 percentage points trimmed off our global GDP growth forecast for 2025 and 2026.

The trade war is causing lower growth through higher pressures on already sticky inflation and through high uncertainty which undermines consumer and business purchasing and investment plans. We do not believe this trade war will produce any winners at the macroeconomic level.

The US shoots itself in the foot, motivating the largest downward revision.

The US economy entered the year running near full capacity, but volatile policymaking and uncertainty have dealt a blow to confidence. Lower investments and the eventual strain on consumers from higher inflation will bring 2025 growth down to 2.0% (previously 2.6%).

US allies in Europe and North America are set to suffer the most.

One remarkable difference between this trade war the one in the first Trump administration is the more aggressive stance toward allies. Canada and Mexico have faced significant tariff volatility and we expect them to escalate before the USMCA trade agreement renegotiations are concluded in mid-2026. As these markets are most closely integrated with the US economy, the negative impact on growth will be most severe, plunging Canada into recession and slashing over 2ppt off Mexico’s growth forecast by the end of 2026. The Eurozone is also facing 0.3ppt lower growth in both 2025 and 2026 due to anticipated blanket tariffs on European goods.

Emerging market economies are also exposed to the trade war but the relative impact is less severe (so far).

Excluding Mexico, our outlook for EMEs is broadly unchanged since December. This is largely thanks to fiscal stimulus and monetary easing in China that helps stimulate domestic demand to offset the negative impacts of US trade measures. China’s direct exposure to US tariffs is also more limited than at the start of the first trade war in 2018.

Rising trade restrictions and tensions will drag on the nascent recovery in global trade.

After rising 1.8% in 2024, in line with our forecast, we now predict international trade to expand only 2.5% in 2025 and 2026 – down from 3.3% and 3.0% respectively expected in December. Rising tariffs directly increase the costs of trade while higher uncertainty reduces demand, especially for investment, indirectly undermining trade. 

Interested in finding out more?

For a complete overview of the impacts of the escalating trade war on our global economic outlook, please download the full report available in the related documents section below.