Our economists are responsible for developing the macroeconomic forecasts and risk scenarios used by S&P Global Ratings' analysts during the ratings process, as well as leading key cross-sector and cross-divisional research projects.
Heightened U.S. policy uncertainty, mainly related to tariffs, is dominating the global macro narrative.
Soft data such as confidence and sentiment have plunged, and U.S. market valuations have retreated. Activity and the hard data have held up so far, but all eyes are on U.S. consumption and employment.
Our GDP growth forecasts have fallen since our previous round. This is driven by U.S. tariff effects and spillovers from a steeper decline in U.S. sequential growth. European growth is lower this year but will improve from 2026 on higher defense and infrastructure spending. China's outlook is stable.
The risks to our baseline are firmly on the downside. We are watching the effects on demand from protracted U.S. policy uncertainty. Should these materialize, the result would be a material slowdown in growth.
READ MORELiberation Day" round of U.S. tariffs exceeds our expectations in both size and scope, lifting effective tariffs to levels not seen in nearly a century.
As such, the new tariffs raise downside risks to our current macro baseline, with the ultimate near-term damage depending on how the tariff revenue is spent in the U.S. as well as the scope and type of foreign country retaliation.
We lay out our initial directional thoughts on the impact of the new U.S. tariffs before we issue a fully revised global macro forecast next week.
The Trump administration's shifting policy mix is altering the economic outlook, with our assumptions reflected in a likely downshift in GDP growth to a 1.6% quarterly average in 2025. The balance of risks to our growth forecast is tilted to the downside.
In turn, we forecast the unemployment rate will drift higher and peak at 4.6% by midyear 2026, with the public sector likely limiting payroll expansion, in contrast to significant contributions to jobs growth in the past two years.
We project inflation will remain closer to 3.0% in 2025 as tariffs increase prices along the domestic supply chain and for end consumers.
As a result, we expect one 25-basis-point federal funds rate cut for 2025, ending the year at 4.00%-4.25%.
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We revised our eurozone GDP growth forecast for 2025 downward to 0.9%, from 1.2% previously, due to uncertainty and U.S. tariffs. However, we expect a substantial recovery from 2026, thanks to fiscal stimulus measures in Germany and the EU. For 2026, we now forecast GDP growth of 1.4%.
The European Central Bank (ECB) could deliver its final rate cut of the year by June, when interest rates might decline to 2.25%. We expect rate hikes as early as the second half of 2026 because fiscal stimulus programs will push growth beyond its potential.
The economic outlook is uncertain, which is why we have included alternative scenarios for the outcome of U.S. tariffs in this publication. In a severe tariff scenario, GDP growth in the eurozone could be limited to 0.5% in 2025 and 1.2% in 2026, with the ECB cutting interest rates more than once this year and raising them later than we currently expect.
Trade uncertainty, potential failure to execute fiscal plans, and spillovers from the U.S. economy currently dominate the balance of risks. However, positive factors could tip the balance if the positive effects from fiscal stimulus programs exceed expectations or confidence improves rapidly.
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While U.S. tariff hikes will hit China's economy, offsetting factors keep our 2025 growth forecast unchanged at 4.1%.
Better growth at the end of 2024 will lift China's 2025 GDP gains; this year's growth target and fiscal stimulus are more ambitious than we had expected.
While U.S.-led trade friction will weigh on the ex-China Asia-Pacific economies, we expect domestic demand momentum to mostly remain solid, generally leading to only modest downward revisions to GDP forecasts.
Still, as the growth outlook softens and inflation is likely to stay moderate, central bankers will increasingly be willing to risk some currency depreciation and cut policy rates
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Lack of visibility over U.S. trade policy is likely to delay investment decisions, with negative implications for GDP in most emerging markets (EMs) this year.
The direct impact of tariffs will be modest in most major EMs outside of Asia and Mexico.
However, if tariffs lead to slower growth in the U.S., other major advanced economies, and China, the knock-on effects in EMs could be substantial.
As we learn more about the specifics of U.S. trade policy, we will also better understand its impact on EMs, but we believe the risks to our growth outlook are mostly to the downside.
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Decoupling of GDP growth from emissions growth has not yet happened in emerging and frontier markets (EFMs). We estimate that 6.3% of GDP (about $2.6 trillion, or $1.4 trillion excluding China) is required by 2030 for EFMs to achieve the committed share of renewables in electricity production under the IEA's Stated Policies Scenario (STEPS).
Economic development is a key part of the challenge. As EFMs catch up, their energy demand could converge with that of advanced economies, raising the need to expand the clean energy supply and avoid increased reliance on fossil fuels. Yet, finance, infrastructure gaps, and lacking access to technology are barriers to speeding up the transition.
Financing is one of the impediments to the energy transition, especially in frontier economies, which we estimate would need to spend 4x more than emerging markets. But infrastructure and technology gaps, scarce resources to meet other basic needs, limited fiscal space, and small capital markets also play a role.
On the positive side, some of the key resource inputs for the transition, such as solar energy and critical minerals, are located in EFMs, which could provide another source of growth and helped EFMs catch up.
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