Now Reading: Trump tariff shock: Fitch warns US economy is slowing down; says evidence visible in ‘hard’ economic data
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Trump tariff shock: Fitch warns US economy is slowing down; says evidence visible in ‘hard’ economic data
Trump tariff shock: Fitch warns US economy is slowing down; says evidence visible in ‘hard’ economic data
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The US economy is slowing down, a incontrovertible fact that is now evident in ‘hard’ data based on Fitch scores’ newest Global Economic Outlook report. “The US economy is slowing down. Our growth forecasts for both 2025 and 2026 are broadly unchanged from the June GEO at 1.6%, but this represents a sharp deceleration from 2.8% in 2024,” Fitch says in its newest report.The US economy confirmed a 0.8% enlargement (non-annualised) in 2Q25, surpassing Fitch’s June forecast of 0.4%, primarily because of lowered imports. However, the GDP fluctuations brought on by Donald Trump administration’s tariff-related elements masks the precise economic deceleration, cautions Fitch.“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,” stated Brian Coulton, Chief Economist at Fitch.Also Read | Strong home demand: Fitch revises India’s GDP development outlook upwards to six.9%; expects one other RBI price reduce this 12 months
- The last home gross sales figures (GDP with out web commerce and inventories) decreased to 1.6% annualised, down from the two.5%-3.0% ranges noticed in 2023 and 2024.
- Consumer spending development declined to 1.6% annualised in 1H25, in comparison with 3% throughout 2023 and 2024.
- Services expenditure has considerably decreased because of weakened shopper confidence and elevated family financial savings.
- Government expenditure on items and companies, which contributed 0.6pp to yearly GDP development in each 2023 and 2024, has now reached a plateau.
- Private funding patterns have proven variation, with tools funding displaying substantial development, pushed by elevated AI-related capital expenditure, while funding in business and residential properties has decreased.
- However, elevated long-term rates of interest proceed to have an effect on property funding, and contemplating the heightened coverage uncertainty, the general funding outlook stays modest.
- The employment panorama exhibits indicators of slowing. The common month-to-month improve in payrolls reached solely 29,000 throughout the three months resulting in August, marking the bottom stage since 2010 (barring the pandemic interval). This pattern displays each diminishing labour availability and demand, notably as restricted immigration insurance policies have an effect on inhabitants enlargement.
- Despite sustaining low unemployment figures, the mixture of lowered job creation, regular wage moderation and growing inflation will negatively affect total actual family earnings, and Fitch anticipates additional discount in consumption throughout the second half of 2025.
Additional tax reductions included in the One Big Beautiful Bill Act are anticipated to increase the fiscal deficit, which ought to bolster demand in the approaching 12 months. From early 2026, Fitch expects quarterly GDP development to enhance, though the yearly common development is projected to stay regular at 1.6%. Recent months have proven a slight improve in core inflation, with tariffs having a minimal affect on costs.“We anticipate a stronger pass-through in the rest of the year as pre-tariff imported inventories are depleted and more firms acknowledge that tariff hikes are here to stay. Nevertheless, we have lowered our end-year CPI forecast to 3.6% from 3.8% in the June GEO,” says Fitch.Also Read | ‘Modi’s struggle’? How US, EU are ‘fuelling’, funding Russia-Ukraine battle“Pass-through from the huge jump in the average effective tariff rate to US CPI inflation has been modest so far, with some evidence in the national accounts that it has partly been offset by downward pressure on corporate profits. But we expect pass-through to accelerate later this year,” it provides.The rise in inflation is anticipated to cut back actual wage will increase and have an effect on US shopper expenditure, which has already demonstrated important slowdown in 2025. Employment enlargement has considerably lowered, partially because of immigration restrictions affecting workforce development. Despite anticipated assist from an increasing fiscal deficit in 2026, Fitch tasks that the US annual common GDP development will stay at a subdued 1.6%, significantly decrease than the standard pattern.The softening in the labour market will make the Fed extra prepared to ease coverage and we now anticipate 25bp of price cuts at each the September and December FOMC conferences and three additional price reductions in 2026, it concludes.
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