Global economic outlook: trade tensions bite

The Trump administration’s tariff policy is rocking markets, sinking confidence, driving up inflation expectations, creating supply chain turmoil and deterring investment.

Fluctuating tariffs add to the uncertainty. The US announced 90-day pause on its reciprocal tariffs on 10 April, just five days after they came into force. During the pause a baseline 10% rate is being applied to imports from all economies, except for Mexico, Canada and specific sectoral levies.

Also temporarily on hold, is the tit-for-tat tariff war between the US and China. The world’s two largest economies agreed to lower tariffs for 90 days from 14 May. Tariffs on Chinese imports to the US are reduced from 145% to 30% and US goods entering China are lowered to 10% from 125% to 10%.

The path ahead for global trade policy is unclear. After the 90-day pauses, the US may reinstate the reciprocal tariffs, extend the pause or drop the reciprocal tariffs altogether. Trading partners have options too: negotiate deals with the US to lower trade barriers, retaliate with higher tariffs on imports from the US or increase non-tariff barriers.

So, what does this uncertainty mean for the global economic outlook? Our latest quarterly macroeconomic outlook provides our detailed view – read on for a few of the highlights. You can also get a closer look at the impact of different tariff scenarios in this month’s Horizons.

1. Global economy loses momentum but avoids global recession

We forecast global gross domestic product (GDP) growth at 2.4% for 2025. Temporary pauses on the US reciprocal tariffs and US levies on Chinese imports have averted the worst-case economic impacts, for now.

2. Global industry is disproportionately impacted

As the tariff war disrupts manufactured goods, global industrial production sees a disproportionately large downgrade compared to GDP. We forecast global IP to grow by 2.2% in 2025, revised down from 3.1% in our Q1 outlook.

3. Supply chains and global trade are already responding to tariff tensions

The increase in trade barriers will accelerate the reshuffling of supply chains and reinforce the trend of exports declining as a share of global GDP. India could benefit from supply chain relocation away from China.

To find out how India’s economic strength could impact global energy markets read Eye on the tiger.

4. The US economy is in reverse

A surge in imports ahead of tariff hikes weighed on the economy in Q1. Weakening consumer sentiment and rising inflation expectations underpin our downgrade of US GDP growth.

5. China’s outlook cut

We adjusted China’s GDP forecast for 2025 to 4.3% from 4.8%. The government possesses policy tools to support growth, but additional stimulus remains uncertain.

6. Risks – trade truce and trade war scenarios

De-escalation of the tariff war presents an upside risk to the forecast. Conversely, an all-out tariff war plunging the global economy into recession is the key downside risk.

Uncertain times call for agility and resilience to different outcomes. This month's Horizons report explores three tariff scenarios and their implications for oil, gas & LNG, power and metals.

Get a closer look at the global economic outlook for 2025 and beyond

Our latest quarterly macroeconomic outlook explores the global picture in detail. Visit the store to access the full report. You could also subscribe to the Inside Track newsletter to get weekly complimentary insights and an interconnected view from our global energy and natural resources experts.