Fitch Ratings has recently revised its 2025 global sovereigns outlook to ‘deteriorating’ from ‘neutral,’ reflecting the increase in trade tariffs and policy uncertainty, which are set to weaken the global growth outlook and heighten the risk of more testing financing conditions.
In its latest mid-year outlook, the agency said the escalation in the global trade war, uncertainty over the endpoint for tariffs and their impact on global trade volumes, supply chains, investment and international relations is a significant unfavorable global economic shock.
In addition, uncertainty over the extent and timing of the effects on prices and activity adds to uncertainty over the path of U.S. Federal Reserve policy rates and the risk of volatility in financing conditions, said Fitch.
Public finances to remain under pressure
Fitch noted that a fall in Brent crude oil prices to $65 a barrel in 2025 from $79.5 a barrel in 2024 will increase economic and fiscal pressures on major exporters. Cuts to U.S. international aid also add to risks facing some emerging markets.
In contrast, a depreciation of the U.S. dollar eases the burden on emerging markets with dollar-denominated debt and gives some emerging-market central banks scope to cut interest rates faster.
Amid growing uncertainty, Fitch expects public finances to remain under pressure in 2025 from rising defence spending, interest costs, demographic trends, weak growth and social pressures, particularly in developed markets.
“We expect median government debt/GDP to increase slightly to 54.5 percent at end-2025 from 54.1 percent at end-2024. Geopolitical risks remain high given the wars in Ukraine and the Middle East, U.S.-China strategic rivalry, trade tensions, social discontent and the flux in U.S. foreign policy,” the report added.
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Global growth to be impacted by increased trade tension
Fitch’s outlook aligns with the World Bank’s latest forecasts for global growth. In its bi-annual Global Economic Prospects report, the World Bank slashed its global growth forecast for 2025 by 0.4 percentage points to 2.3 percent, noting that the global economy is facing a “substantial headwind”, with increased trade tension and heightened policy uncertainty.
The bank said global growth is slowing due to a substantial rise in trade barriers and the pervasive effects of an uncertain global policy environment. The forecast marks the slowest rate of global growth since 2008, aside from outright global recessions. By 2027, global gross domestic product growth was expected to average just 2.5 percent, the slowest pace of any decade since the 1960s.
Fitch added that rating outlooks are close to balance in mid-2025, with 13 on positive outlook, only slightly more than the 10 on negative outlook. Downgrades since 2020 have created headroom in some ratings to withstand a worsening in credit conditions but policy responses will support ratings in some cases.
