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S&P: New US tariffs will negatively impact economic growth in most countries

04 April 2025 11:11 (UTC +04:00)

The new tariffs imposed by the U.S. government on trade will negatively affect global economic growth, and simultaneously, there will be a decrease in interest rates related to monetary policy, APA- Economics reports citing S&P Global Ratings International Rating Agency.

Economic growth will slow in most countries

It was noted that the higher U.S. tariffs on goods imports are more severe in scope and size than those included in baseline scenario published last week:"In terms of directional guidance, we forecast lower GDP growth forecasts and policy rates for the most part, although these may both vary significantly across economies."

S&P believes that large economies such as the Eurozone and China are likely to see smaller adjustments to their growth rates, bounded at around one-fourth percentage point per year. Europe will still see upside from higher infrastructure and defense spending from 2026.

More open economies that depend on trade for growth are likely to see larger adjustments to their growth rates, particularly if they trade heavily with the U.S. This is the case, for example, of Ireland and Switzerland in Europe and the Tiger economies in Asia-Pacific. Canada escaped much more lightly than feared for the time being. Still, the auto tariffs, steel and aluminum tariffs, the ongoing uncertainty about the tariff policies, and weaker U.S. growth will keep growth well below potential in 2025. The escape hatch-- if Mr. Trump decides that Canada has appeased border and drugs trafficking concerns—is one of a weighted average tariff rate lower than 10%.

Latin America is subject to relatively lower reciprocal U.S. tariff rates than those announced on other economies. For the region's economies, the main impact on GDP will come from the impact of weaker global demand.

Monetary policy

S&P says it also anticipates changes to policy interest rates. Again, these will be differentiated. Central banks in economies that are larger, more domestically led and less reliant on dollar-denominated financing will have more latitude to cut rates in response to slower growth. For example, we can envisage one additional cut by the European Central Bank this year. In contrast, central banks in smaller, more open, and more dollar-reliant economies will be more constrained by what the Fed does. For those central banks in vulnerable economies with less well anchored inflation expectations, rates may have to rise to protect the balance of payments.

Mutual measures

"We expect U.S. trading partners to respond to the latest round of tariffs. We forecast these countermeasures playing out over the coming weeks. We think they will be targeted at perceived vulnerable U.S. industries (and political districts) rather than broad-based. We are also expecting in some cases non-tariff measures as well as measures effecting services as well as goods flows. These potential countermeasures would put further downside pressures on growth," - S&P added