Saturday, 13 December 2025
Fitch Ratings has upgraded its global economic growth projections for 2025 and 2026, pointing to a surge in US IT investment and strong equity-market wealth effects as key forces offsetting the negative impact of tariff hikes. The revised outlook is set out in the December 2025 edition of the Global Economic Outlook.
The agency now expects the world economy to expand by 2.5% in 2025 and 2.4% in 2026, both figures 0.1 percentage points above its September forecasts. Growth improvements in the US and eurozone outweigh a looming slowdown in China, which remains the primary drag on the global forecast.
In the United States, the economic impact of a sharp tariff increase—lifting the effective tariff rate to an estimated 13.6%, the highest since 1941—has been far less severe than previously anticipated. Fitch attributes this resilience to a powerful acceleration in AI-driven capital spending. IT investment alone accounted for nearly 90% of US GDP growth in the first half of 2025, with private-sector capital expenditure projected to rise by nearly 4% next year. Equity-market gains have also supported household spending, contributing an estimated 0.3 to 0.4 percentage points to consumption. As a result, Fitch now expects US GDP to grow by 1.8% in 2025 and 1.9% in 2026. Chief Economist Brian Coulton notes that “the AI revolution has prompted additional private-sector spending on a scale that is heavily cushioning the adverse impact of tariff hikes on the US economy. The robots have come to the rescue.”
The eurozone outlook has brightened as well. The region avoided the contraction previously forecast for the third quarter, supported by stronger aeronautical exports in France, broad-based investment, and a more stable performance in Ireland following earlier volatility. Credit conditions have begun to improve, and the fiscal stance in Germany is expected to turn markedly expansionary. Fitch now projects eurozone growth of 1.4% in 2025 and 1.3% in 2026, slightly above potential.
China remains the central source of downside pressure on global growth. Although Fitch has raised its 2025 projection slightly to 4.8%, it expects growth to slow significantly to 4.1% in 2026. The report highlights an unprecedented decline in fixed-asset investment, which has fallen year-on-year since June, marking the first sustained drop outside the pandemic. Weak domestic demand, a deepening property downturn, sluggish retail sales and entrenched deflation continue to weigh on economic activity. Real estate investment has been contracting for nearly four years, and investment in manufacturing and infrastructure has begun to decline as well. Fitch anticipates that authorities will ultimately ease policy in 2026 to prevent growth from slipping below 4%, supported by a large general government fiscal deficit of around 8% of GDP.
Loose fiscal policy across the world’s largest economies is another factor underpinning global resilience. The US deficit is expected to reach 6.8% of GDP in 2025 and widen further in 2026, while China’s deficit remains above 8%. In dollar terms, the two countries will borrow a combined USD 4 trillion next year, equivalent to 4% of global GDP. Germany is also set to enter a period of significant fiscal easing, which Fitch believes could lift its growth by roughly half a percentage point in 2026.
Monetary policy is moving gradually back toward neutral. Fitch expects the Federal Reserve to pause rate cuts in December before lowering rates three times by mid-2026, bringing the federal funds rate to around 3.25% as the tariff shock stabilises and labour-market conditions soften. The Bank of England is projected to cut rates three times in 2026 as unemployment rises and wage pressures ease, while the European Central Bank is not expected to cut further after reductions earlier in the year. Labour markets across the US, UK and eurozone show declining vacancy-to-unemployment ratios, easing central bank concerns about inflation persistence.
Emerging markets will see more moderate momentum. Fitch expects emerging-market growth to ease to 3.7% in 2026, with expansion outside China slowing to 3.2%. Forecast revisions have generally been positive, with India receiving the largest upgrade, while Russia stands out as the major downgrade due to deteriorating economic indicators.
Fitch flags several risks to the outlook, particularly in the United States. Equity valuations are described as “very rich,” with the S&P 500’s market capitalization reaching 185% of nominal GDP in the third quarter of 2025, a post-war record. Price-earnings ratios are well above historical norms, and the market value of corporate equity liabilities now exceeds twice the sector’s total net worth. While high valuations do not predict imminent corrections, the report warns that a significant drop in equity prices would pose a substantial risk to US consumption. Another uncertainty centres on future US trade policy, including an upcoming Supreme Court ruling on the legality of using emergency powers to impose tariffs.
Source: Fitch
