US economy expected to grow 1.5% in 2025, 1.7% in 2026: S&P Global

In a recent report titled ‘Global Macro Update: Seismic Shift in US Trade Policy Will Slow World Growth’, the rating agency said the risks to its baseline remain firmly on the downside in the form of a stronger-than-anticipated spillover from the tariff shock to the real economy.

The longer-term configuration of the global economy, including the role of the United States, is also less certain, it noted.

The US economy is expected to grow by 1.5 per cent this year and by 1.7 per cent in the next, the report said. US GDP growth falls by about 60 basis points (bps) over 2025-2026; Canada's and Mexico's GDP growth falls by a similar amount as well.

Eurozone GDP growth is about 0.2 percentage points lower over the next two years, with Germany taking the biggest hit among the major economies.

“We anticipate that robust German and European fiscal spending on infrastructure and defense will counteract the negative effects of US tariffs and uncertainty. We anticipate eurozone growth will be above potential in 2027 and 2028,” the report said.

In emerging markets, more open Asia-Pacific economies (Malaysia, Vietnam, Thailand and Singapore) see the biggest decline in GDP growth, falling by 0.5-1.0 percentage points per year.

Except, China, the European Union and Canada, S&P Global ratings expects most other countries to try to negotiate a settlement with the United States on the reciprocal tariffs issue rather than retaliate.

The economic fallout from the tariff shock has been limited so far to drops in confidence indices and declines in nominal variables. It has yet to affect the real economy other than some front-running of imports to beat the tariffs, the report noted.

That may be starting to change, as goods shipments from China have recently begun to decline, it said.

The US Federal Reserve is projected to cut interest rates by 50 bps this year.

The effects of US reciprocal tariffs on GDP growth are relatively low outside the Asia-Pacific. This is because most countries run a trade deficit with the United States and the April 2 tariffs were, therefore, 10 per cent.

The main exception for non-Asia growth effects is Mexico, given its close relations with the United States, despite no new tariffs.

In most emerging market economies, the direct effects of the tariffs had a larger effect on growth than the indirect effects, which include weak global demand and general uncertainty, the report added.

S&P Global Ratings’ top macro risk in the next 12 months is that higher tariffs, uncertainty and financial market turbulence will lead to a sharp contraction in the real economy in the United States and elsewhere.

Fibre2Fashion News Desk (DS)