Fitch Ratings has slightly lifted its 2025 global growth forecast but warned that the US economy was slowing as the impact of US President Donald Trump’s Liberation Day tariffs started to take their toll everywhere.

Since February, there has been a massive increase in US tariffs. The US effective tariff rate is estimated at 16%. The ratio of US customs duty inflows to imports has increased to more than 10% from 2.5% and high tariffs risk hitting productivity growth.

Global GDP is now expected to expand by 2.4% in 2025, up 0.2 percentage points from June but still below the 2.9% recorded last year and below trend, Fitch said in its latest Global Economic Outlook on September 9. The upgrade reflects stronger-than-anticipated data in the second quarter and upward revisions for China, the eurozone and the US.

“Greater clarity about US tariff hikes does not alter the fact that they are huge and will reduce global growth. And evidence of a slowdown in the US is now appearing in the hard data; it’s no longer just in the sentiment surveys,” said Brian Coulton, Chief Economist at Fitch.

Oxford Economics expects US annualised growth to drop to 1.2%-1.3% in the third quarter and the fourth quarter from more than 3% in the second quarter.

“A key factor behind this slowdown will be investment weakness caused by elevated levels of trade and economic policy uncertainty and the past tightening of financial conditions,” Oxford Economics said a note. “The US slowdown is expected to be largely temporary, especially relative to other advanced economies.”

The US just reported terrible jobs numbers, signalling a sharp loss of momentum in the labour market and intensifying concerns about the strength of the world’s largest economy. According to data released on September 12 by the US Department of Labor, non-farm payrolls rose weakly, while previous months’ figures were revised down. The unemployment rate climbed. The Federal Reserve is due to meet later this month and is now expected to make a 25 basis point rate cut to boost growth. Two reductions of 25 basis points each are forecast this year and three more in 2026.

Fitch noted that the immediate impact on US consumer prices has been modest, with corporate profits absorbing part of the shock. “We expect pass-through to accelerate later this year,” the agency warned.

That shift is expected to squeeze real wages and household consumption, with US consumer spending already slowing in 2025.

A widening fiscal deficit could provide some support in 2026, but Fitch forecasts US growth to remain subdued at 1.6% next year.

China’s resilience has come from currency depreciation, lower export prices and fiscal easing, though Fitch observed that “private domestic demand growth seems to be weakening, and deflation is increasingly entrenched.”

In Europe, stronger first-half exports have been flattered by front-running ahead of US tariffs. With consumption fading, Fitch said the eurozone is unlikely to see growth in the second half of 2025, though German fiscal easing should bolster activity in 2026.

The European Central Bank is unlikely to ease further, Fitch added, limiting the scope for any rebound in the US dollar after its depreciation in the first half.

Long-term government bond yields across the US, UK, Germany and Japan continue to rise, which Fitch suggested “possibly reflects concerns about supply.”