United States: Growth outlook cooling but not collapsing

We downgrade our US growth forecasts amid the trade war, but do not expect an outright recession. We forecast 2025 GDP growth at 1.6% (from 2.3%) and 2026 at 1.3% in 2026 (from 1.9%). In quarterly terms, we pencil in majority of the negative impact for Q3 and Q4 of 2025 and expect sequential growth to recover gradually from Q1 2026 onwards.

After the much sharper-than-expected tariff increases in April, the latest trade deals have brought down the rates close to the base scenario we laid out in December 2024. That said, the tariffs have been implemented much faster than we thought, and the USD FX rate has not compensated for the tariff impact - but rather the opposite.

We still expect the tariff-driven price increases to remain temporary in nature. We lower our forecast for headline inflation to 2.8% in 2025 (from 3.0%) due to lower oil prices but lift 2026 forecast to 2.6% (from 2.4%). We maintain 2025 core inflation forecast at 3.0% in 2025 (from 3.0%) and lift 2026 to 2.8% in 2026 (from 2.4%).

We recently delayed our forecast for the Fed's next rate cut until September but still maintain our terminal rate forecast of 3.00-3.25% unchanged (reached by September 2026).

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