BAKU, Azerbaijan, May 1. The global economic outlook has taken a sharp turn for the worse following the United States’ imposition of sweeping tariffs on nearly all major trading partners, Trend reports via BMI, a Fitch Solutions company.
The report estimates that the US average effective tariff rate has surged tenfold to approximately 25%, prompting BMI to downgrade its global real GDP growth forecast for 2025 from 2.5% to 2.1% — the slowest pace of global expansion in two decades, excluding the Covid-19 pandemic and the 2008 Global Financial Crisis.
“This tariff shock is reverberating across the global economy,” the report states, highlighting downward revisions for key economies, including the United States (from 1.9% to 1.2%), Mainland China (from 4.5% to 4.0%), and Germany (from 0.6% to 0.1%).
BMI outlines four primary channels through which the elevated tariffs are expected to dampen growth: higher prices and disrupted trade flows, increased uncertainty impacting business and employment, reduced household wealth amid declining equity markets and rising joblessness, and tighter financial conditions curbing investment and lending.
In the short term, the US is expected to slightly raise its average tariff rate further, as Washington prepares to apply additional Section 232 tariffs targeting pharmaceutical goods and semiconductors. However, BMI expects these rates to ease gradually.
“We anticipate the average US effective tariff rate will fall to around 16% by the end of 2025, as trade negotiations progress,” the report notes. “While many Section 232 tariffs — especially those on ‘strategic’ goods like automobiles — are likely to remain, there is room for reciprocal tariffs introduced in April to be reduced through dialogue.”
Trade talks are expected to concentrate on non-tariff issues such as market access, goods-dumping practices, local regulations, and currency manipulation. Most of the US’s trade partners may be able to secure reduced tariff rates in the range of 10–20% this year. However, the outlook for China is far more pessimistic.
“We expect that the US effective tariff on Chinese goods will only fall to about 45%,” BMI warns, citing the absence of any meaningful diplomatic engagement between Washington and Beijing to date.
The report also underscores the fragility of its baseline forecast, emphasizing the risks of prolonged or escalating trade tensions. “Any delays in negotiations, or new tariff threats, could keep tariff rates elevated well into 2026,” BMI said. “A breakdown in talks, particularly between the US and Europe or China, would likely trigger a broader trade conflict.”
BMI assumes that major economies such as the EU will respond only moderately to US actions. However, it cautions that large-scale retaliatory tariffs could prompt a full-scale escalation in transatlantic trade tensions.
