Fitch Ratings has changed Australia’s outlook to negative from stable while affirming its rating. This revision aligns with concerns around global growth impacted by the new US administration’s trade policies.
The agency has reduced its 2025 US GDP growth forecast to 1.7% from 2.1% and 2026’s forecast to 1.5% from 1.7%. Mexico and Canada are expected to face technical recessions, with growth forecasts reduced by 1.1 percentage points and 0.7 percentage points, respectively.
Global Growth Estimates
World growth estimates have also been cut to 2.3% from 2.6%. The predictions for 2026 remain subdued at 2.2%.
China and Germany’s fiscal measures are expected to mitigate the effects of increased US tariffs. However, eurozone growth this year is considerably lower than previously forecast.
The modelling shows that tariff hikes could lower GDP by approximately 1 percentage point in the US, China, and Europe by 2026, based on assumed tariffs of 15% on multiple countries and 35% on China. Fitch notes considerable uncertainty regarding the extent of US tariffs and acknowledges the potential for a larger global trade shock.
When a major credit rating agency shifts its outlook for a country, it reflects a reassessment of economic risks. Australia’s downgrade to a negative outlook follows concerns about broader global conditions, particularly trade policy shifts in the United States. This change does not reflect an immediate downgrade to the nation’s credit rating but signals that downside risks have increased.
The downward revisions to US economic growth estimates suggest that expectations for business activity, investment, and consumer demand have weakened. A slower economy generally leads to lower corporate earnings, reduced capital expenditure, and, in some cases, higher unemployment. For markets, this translates into potential dampening of risk appetite, with ripple effects across bonds, equities, and derivative pricing.
Mexico and Canada facing technical recessions is not unexpected given their close economic ties to the United States. Both economies are heavily reliant on trade with their neighbour, so any tightening of commercial conditions weighs directly on their outlook. With growth estimates lowered by a full percentage point for Mexico and a smaller, but still notable, reduction for Canada, forecasts indicate a subdued environment for key North American markets in the near term.
The reduction in world growth estimates compounds these regional setbacks. Global GDP forecasts now stand at 2.3%, down from 2.6%, with the outlook for 2026 remaining at 2.2%. This moderation implies a broader slowdown, and for those monitoring international trade flows or commodity demand, such figures suggest a restrained pace of expansion. Those involved in currency markets will also be watching how these softer projections affect monetary policy expectations across key economies.
Impact Of Tariff Policies
China and Germany’s efforts to counterbalance the disruptions caused by higher US tariffs introduce another variable. Both have tools at their disposal to support domestic activity, but whether these actions fully offset the drag remains uncertain. Meanwhile, the eurozone’s downward revisions indicate that growth prospects there have weakened further than previously expected. This reinforces the notion that external pressures—whether trade-related or monetary policy-driven—are weighing on European economies more than before.
The modelling around tariff impacts is worth paying attention to. With base assumptions including 15% duties on numerous countries and a substantially higher 35% rate on China, the expectation is that these trade restrictions will reduce GDP in the US, China, and Europe by around 1 percentage point by 2026. Fitch acknowledges that precise outcomes remain uncertain, but the modelling suggests that if tariffs escalate beyond current projections, the drag on global growth could be more pronounced.
These shifting conditions have implications for those navigating financial markets in the coming weeks. When growth projections are revised downward, expectations around interest rates, inflation, and corporate earnings shift as well. That, in turn, affects price movements in key asset classes. Markets have already been reacting to these developments, and as new trade policies unfold, further adjustments are likely.
