The global economic landscape in mid-2025 is characterized by heightened volatility and uncertainty, significantly influenced by shifts in trade policies, particularly the implementation of new tariffs. These factors are reshaping economic forecasts and impacting various aspects of global trade.
Key Economic Forecasts and Impacts (Mid-2025 Outlook):- Global Growth Slowdown: Most forecasts indicate a slowdown in global growth for 2025.
The International Monetary Fund (IMF) projects global growth at 2.8% for 2025, a significant downgrade from earlier forecasts, largely attributing this to tariff announcements and ensuing policy unpredictability. Without the April tariffs, global growth might have been around 3.2%.
UNCTAD estimates a global gross product expansion of only 2.3% in 2025, below the 2.5% threshold often considered a marker for a global recessionary phase.
S&P Global also cut its global real GDP growth projection for 2025 to 2.5%, which would be the weakest since 2009 (excluding the COVID-19 shock).
EY projects stable global real GDP growth at 3.1% for 2025, but with significant regional divergences.
The World Trade Organization (WTO) warns that global merchandise trade could decline by 0.2% in 2025, potentially falling to 1.5% if trade tensions escalate.
ING has lowered its 2025 trade growth forecast from 2.5% to 1.2% YoY due to declining new orders and front-loading in Q1 followed by a sharper downturn.
- Inflationary Pressures: Tariffs are expected to contribute to higher inflation.
The IMF notes an upward revision in global inflation by about 0.1 percentage point, though the disinflation momentum is expected to continue.
J.P. Morgan forecasts U.S. PCE price inflation for 2025 to climb to 2.7%, with core PCE inflation at 3.1% due to tariffs.
Vanguard foresees US core inflation ending 2025 at nearly 4% year over year.
EY anticipates global inflation to steadily decline but notes risks from trade protectionism.
Research indicates that proposed U.S. tariffs could lead to a 60-to-80 basis point increase in cost structures globally, likely passed on to consumers.
- Regional Economic Performance:
United States: Projections show a marked slowdown. The IMF revised US growth to 1.8% (down from 2.7%). Vanguard predicts US GDP growth below 1% in 2025, raising recession risks. J.P. Morgan lowered its 2025 real GDP growth estimate for the U.S. to 1.6%. EY projects US real GDP growth to slip from 2.8% in 2024 to 2.2% in 2025.
Eurozone: Growth is expected to be modest. The IMF revised Euro area growth down to 0.8%. Vanguard forecasts less than 1% GDP growth for the Eurozone in 2025. The European Central Bank (ECB) staff projections indicate Euro area growth of 0.9% in 2025. EY expects Euro area real GDP growth to pick up to 1.3%.
China: Growth forecasts have been reduced. The IMF lowered China's growth forecast to 4%. J.P. Morgan marked down China's full-year 2025 growth to 4.4%. EY foresees real GDP growth in mainland China slowing to 4.5% in 2025.
United Kingdom: Expected to be modestly affected by US tariffs. Vanguard downgraded UK GDP growth forecasts to around 0.5% in 2025.
Canada: Forecast to fall into recession in mid-2025 due to trade policy impacts.
India: Remains a bright spot with projected real GDP growth around 6.4%, supported by domestic demand and public investment.
Emerging Markets: Could face significant slowdowns depending on tariff levels, with the IMF lowering its growth forecast for this group to 3.7%.
- Trade Dynamics:
Global trade growth is projected to dip more significantly than output, with the IMF forecasting a 1.7% growth in global trade for 2025.
Businesses may re-route trade flows, but this is becoming more difficult.
The WTO highlights that the outlook for global trade has sharply deteriorated due to a surge in tariffs and trade policy uncertainty. North American exports are expected to see a significant drop.
- Policy Uncertainty:
High policy uncertainty is a major driver of the economic outlook. The Economic Policy Uncertainty Index reached its highest levels this century in early 2025.
This uncertainty is prompting companies to pause investments and cut spending. Financial institutions are reassessing borrowers' exposure.
The WTO emphasizes that all forecasts should be interpreted with greater caution than usual due to heightened uncertainty.
- Tariff Impact Models:
Mechanism of Impact: Tariffs act as a negative supply shock, reallocating resources to less competitive sectors, reducing aggregate productivity, and increasing production prices. In the medium term, they can decrease competition and innovation.
Direct and Indirect Costs: The costs of tariffs are often borne by consumers and businesses. The impact on businesses is uneven, varying significantly by sector and a company's exposure through its supply chain.
Modeling Approaches: Companies are using tariff cost modeling, which involves analyzing product flows, mapping them to HTS codes, and estimating costs under various scenarios. Competitive advantage modeling assesses risks and opportunities relative to peers. Demand modeling and pricing implications are also crucial.
Specific Model Estimates:
The IMF's reference forecast, including tariff announcements between February 1 and April 4 and countermeasures, reduced their global growth forecast by a cumulative 0.8 percentage points for this year and next.
A universal 10% rise in U.S. tariffs, with retaliation, could reduce U.S. GDP by 1% and global GDP by roughly 0.5% through 2026, with about half of this attributed to negative sentiment shock.
The Budget Lab at Yale estimates that US tariff policies announced through April 7, 2025, will result in an average effective tariff rate of 22.5%, potentially reducing US GDP growth by 0.9 percentage points in 2025.
EY modeling suggests that reciprocal tariffs (a hypothetical scenario) could lead to stagflation, with a 1 percentage point drag on US real GDP growth in 2025 and adding 1 percentage point to US consumer price inflation by Q4 2025.
BlackRock estimates that a 20% effective tariff increase could have a 2-2.5% downward impact on growth.
- Risks and Challenges:
Escalating Trade Tensions: Worsening trade tensions could further depress growth and lead to tighter financial conditions.
Financial Market Volatility: Markets have reacted negatively to diminished growth prospects and increased uncertainty. The VIX index ("fear gauge") has climbed.
Stagflation Risk: The combination of higher inflation and slower growth due to tariffs raises concerns about stagflation in some economies, particularly the US.
Geopolitical Factors: Geopolitical tensions and conflicts remain potential disruptors to global supply chains and commodity prices.
- Policy Recommendations:
Promote a stable and predictable trade environment through international cooperation.
Address domestic imbalances and structural issues.
Central banks should remain vigilant, and policy rate reductions may continue where inflation moderates and demand is subdued, provided trade tensions don't intensify further.
* Companies are advised to develop "geopolitical nerve centers" to navigate expanding tariffs and trade controls by orchestrating rapid actions across operations, supplier diversification, and scenario planning.
Overall Sentiment:The mid-2025 outlook for global trade and economic forecasting is decidedly cautious. The proliferation of tariffs and the high degree of policy uncertainty are significant headwinds, leading to downward revisions in growth forecasts and upward pressure on inflation. While some regions like India show resilience, major economies like the US, Eurozone, and China are experiencing slowdowns. The ability of businesses and policymakers to navigate this volatile environment will be crucial in mitigating the negative impacts and fostering a return to more stable and predictable global economic conditions. The focus is increasingly on building resilience, diversifying supply chains, and adapting tariff impact models to better inform decision-making in this new era of trade.