Tariff worries weigh amid US, global recession warnings

Just as the tariffs-fuelled worries about an escalating trade war are wreaking havoc on global financial markets, the global economic outlook could deteriorate further as US President Donald Trump pursues aggressive policies.

The US economy is seen set to lose billions of dollars in revenue in 2025 from a pullback in foreign tourism and boycotts of American products, adding to a growing list of headwinds keeping recession risk elevated.

The International Monetary Fund on Tuesday slashed its forecast for global growth this year, citing the effect of Trump’s new tariff policies on the world economy.

The IMF’s projections, which incorporate some but not all tariff measures introduced this year, see the global economy growing by 2.8% this year, 0.5 percentage points lower than the previous World Economic Outlook (WEO) forecast in January.

“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,” IMF chief economist Pierre-Olivier Gourinchas told reporters in Washington. “If sustained, increasing trade tensions and uncertainty will slow global growth.”

Global trade is expected to plummet this year in the wake of Trump’s tariff offensive, fuelling uncertainty that threatens “severe negative consequences” for the world, the World Trade Organisation warned last Wednesday.

While Trump made a U-turn on steeper tariffs for dozens of countries, he has escalated a trade war with China, slapping 145% levies on Chinese goods while Beijing retaliated with a 125% duty on US products.

The global trade war unleashed by the US has prompted many in the market to question the dollar’s role as a global reserve currency. It has also triggered selling across Treasuries in favour of other safe assets like German bonds.

The dollar slumped in recent days as investors questioned the safe haven status of US assets at a time when policy uncertainty in the world’s biggest economy nears a peak.

An aggressive US tariff policy will trigger a significant slowdown in the US economy this year and next, with the median probability of recession in the next 12 months approaching 50%, according to economists polled by Reuters.

Median inflation forecasts in the April 14-17 Reuters poll have surged since last month, potentially restricting the Federal Reserve from delivering more than two interest rate cuts between now and year-end.

The probability of a US recession over the coming year has surged to 45%, the highest since December 2023, from 25% last month.

The US economy, which started the year on a solid footing of strong growth, consumer spending and hiring, is expected to grow just 1.4% in 2025, a sharp downgrade from 2.2% predicted last month.

JP Morgan ratcheted up its odds for a US and global recession to 60%, as brokerages scrambled to revise their forecast models with tariff distress threatening to sap business confidence and slow down global growth.

HSBC has said the recession narrative will gain traction, but added some of this is already “priced in”.

Other research firms including Barclays, BofA Global Research, Deutsche Bank, RBC Capital Markets and UBS Global Wealth Management also warned the US economy faces a higher risk of slipping into a recession this year if Trump’s new levies remain in place.

To be sure, several US economic indicators are slowing down, but economic data have yet to fall off a cliff. The concern is whether the US can resist the downdraft, providing a balance for the rest of the world.

Longer term, however, the greater concern is if consumers and other countries will conclude that the US is not a bastion of predictability and stability for the global economy.