Lead: Fitch Ratings has raised its 2025 global growth forecast, reflecting stronger-than-expected momentum in China and the eurozone. Yet the agency cautioned that a potential U.S. slowdown could weigh heavily on the world economy, underscoring an uneven recovery across regions.
Introduction: A Mixed Global Growth Picture
Fitch Ratings has revised its global GDP growth forecast moderately upward to 2.4% for 2025, an increase of 0.2 percentage points from the June outlook. This upward revision comes on the heels of better-than-expected second-quarter data, particularly from China and the eurozone. However, the agency emphasized that this still represents a sizeable slowdown from 2.9% last year and below trend.
The revision paints a nuanced picture of the global economy—one where certain regions are demonstrating unexpected resilience while the world’s largest economy shows concerning signs of deceleration. Brian Coulton, Chief Economist at Fitch, stated “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”.
Regional Breakdown: Divergent Growth Trajectories
China’s Resilient Performance
China’s forecast has been raised to 4.7% from 4.2%, marking a significant upward revision of 0.5 percentage points. This adjustment reflects China’s ability to navigate global headwinds through strategic policy measures. Chinese exports have held up despite tariff shocks through a weaker effective exchange rate, with falling export prices helping redirect overseas sales and support the country’s trade performance.
The Chinese government’s fiscal easing measures are providing crucial support to growth, though Fitch warns that private domestic demand shows signs of softening, and deflation risks are deepening within China’s economic landscape.
Eurozone’s Modest Recovery
The eurozone’s growth forecast improved to 1.1% from 0.8%, though this improvement comes with important caveats. Fitch cautioned that some of the recent positive surprises there were linked to businesses front-running purchases ahead of US tariff hikes. This suggests that the current momentum may not be sustainable throughout the year, as European exports are unlikely to maintain their first-half pace through the remainder of 2025.
India: The Bright Spot
Among emerging markets, India stands out as a particular success story. Fitch has revised up its forecast for the fiscal year ending March 2026 (FY26) to 6.9% from 6.5% in the June GEO. This makes Fitch’s projection the most optimistic among major rating agencies, surpassing estimates from the Reserve Bank of India, the Asian Development Bank, and S&P Global Ratings, all of which project 6.5% growth.
For the next fiscal year (2026-27), Fitch projected growth at 6.3%, which would edge down to 6.2% in FY28. This sustained growth above 6% through FY28 positions India as one of the fastest-growing major economies globally, driven primarily by robust domestic demand and a thriving services sector.
U.S. Risks: Hard Data Confirms Slowdown Concerns
The most significant concern in Fitch’s outlook centers on the United States economy. The US’s forecast was raised only slightly to 1.6% from 1.5%, representing growth well below the country’s historical trend. More worryingly, the agency notes that evidence of an underlying US slowdown is now visible in ‘hard’ economic data, moving beyond mere sentiment indicators.
Several factors are contributing to this deceleration:
Consumer Spending Pressures
Consumer spending has already slowed in 2025, mainly due to higher inflation that has reduced real wage growth. The impact of tariff-induced inflation is expected to intensify later in the year, further dampening household purchasing power. Pass-through from this huge jump in the ETR to US CPI inflation has so far been modest, but Fitch expects this to accelerate, adding additional pressure on consumer budgets.
Labor Market Weakness
Job growth has also decelerated sharply, partly because of tighter immigration policies that have restricted labour force expansion. This combination of slowing job creation and reduced labor force growth presents a structural challenge to the U.S. economy’s capacity for expansion.
Trade Policy Uncertainty
Fitch’s latest estimate of the average US effective tariff rate (ETR) is 16%, representing a massive increase that will inevitably impact global trade flows. While there has been some reduction in uncertainty following recent policy announcements, the sheer magnitude of these tariffs continues to pose risks to both domestic and international growth.
Market Implications: Navigating Divergent Growth Paths
The divergent growth trajectories outlined by Fitch carry significant implications for global financial markets:
Currency Markets
The relative weakness in U.S. growth compared to emerging markets like India and China could pressure the dollar’s dominance, particularly if the Federal Reserve accelerates rate cuts in response to economic softening. Conversely, currencies of countries with stronger growth outlooks may see appreciation pressures.
Bond Markets
With the weakening labour market in the United States expected to persuade the Federal Reserve to cut interest rates more quickly than previously expected, U.S. Treasury yields may face downward pressure. This could trigger a global search for yield, benefiting emerging market bonds, particularly in countries like India with strong growth fundamentals.
Equity Flows
The stark contrast between U.S. slowdown risks and emerging market resilience suggests potential shifts in global equity allocations. India’s sustained growth above 6% through FY28, combined with reforms to the Goods and Services Tax effective from September 22, which should modestly boost consumer spending, makes it an increasingly attractive destination for international capital.
Policy Angle: Central Banks Face Divergent Challenges
The global growth divergence creates complex challenges for central banks worldwide:
Federal Reserve’s Dilemma
The Fed faces the delicate task of supporting growth while managing inflation expectations. With evidence of economic slowdown mounting, pressure for aggressive rate cuts is building, yet tariff-induced inflation could complicate this path.
Reserve Bank of India’s Opportunity
Fitch expects food price pressures to remain weak, in the context of above-average monsoon rainfall and high food stockpiles, so that inflation will only pick up to 3.2% by end-2025 and 4.1% by end-2026. This benign inflation outlook provides the RBI with room to support growth through accommodative policy.
European Central Bank’s Balancing Act
With growth remaining below trend despite the recent uptick, the ECB must balance supporting economic recovery against potential inflationary pressures from currency weakness and supply chain disruptions.
Conclusion: Cautious Optimism Tempered by U.S. Uncertainties
Fitch’s revised global growth outlook for 2025 presents a world economy at a crossroads. While the upward revision to 2.4% growth reflects genuine strength in certain regions, particularly Asia, the forecast remains significantly below the 2.9% growth recorded in 2024 and below long-term trend rates.
The contrast between U.S. economic weakness and emerging market resilience represents both a risk and an opportunity. For global investors, the message is clear: diversification across geographies has rarely been more important. Countries like India, with strong domestic demand drivers and sustained growth prospects above 6%, offer compelling alternatives to traditional developed market exposures.
However, the interconnected nature of the global economy means that a significant U.S. slowdown cannot be entirely offset by strength elsewhere. The world’s largest economy remains a critical engine of global demand, and its deceleration will inevitably create spillover effects.
As we move through 2025, market participants should closely monitor the interplay between U.S. policy responses, emerging market momentum, and the evolution of global trade tensions. The ability of policymakers to navigate these divergent growth paths while maintaining financial stability will ultimately determine whether Fitch’s cautiously optimistic outlook proves prescient or overly sanguine.
The key takeaway for investors and policymakers alike is that the global economy is entering a period of unprecedented divergence, where traditional correlations may break down and new opportunities emerge in unexpected places. Success in this environment will require flexibility, careful risk management, and a willingness to look beyond conventional wisdom.
Sources:
- Economic Times / Reuters: “Fitch lifts 2025 global growth aim with a worrying rider; India seen to stay above 6% through FY28” (September 2025)
- Fitch Ratings Global Economic Outlook (September 2025)
