Barclays no longer expects the U.S. economy to enter a recession later this year and has upgraded its growth forecasts, highlighting signs of a de-escalation in U.S.-China trade tensions, Reuters reported, citing a recent note released by the bank. Barclays now expects the U.S. economy to grow by 0.5 percent this year and 1.6 percent next year, an increase from previous forecasts of -0.3 percent and 1.5 percent, respectively.
The bank also raised its euro area growth expectations due to reduced uncertainty and an improved economic backdrop. It now forecasts flat economic growth for the euro area this year, compared to a previous estimate of a 0.2 percent contraction. Barclays noted that it still expects a technical recession in the euro zone during the second half of 2025, but with growth contracting by less than previously anticipated.
Barclays expressed a cautious outlook for the euro area’s growth, citing elevated uncertainty and ongoing negotiations on reciprocal tariffs between the European Union (EU) and the U.S., which remain at a technical level without signs of progress.
Early this week, the United States and China reached a preliminary agreement to temporarily lower tariffs on each other’s goods, as the world’s two largest economies seek to resolve a damaging trade dispute. This situation has raised concerns about a potential recession and created uncertainty in financial markets.
Temporary tariff reductions announced
Following discussions with Chinese representatives in Geneva, U.S. Treasury Secretary Scott Bessent announced a 90-day suspension of further actions by both nations. He indicated that tariffs would be reduced by more than 100 percentage points, establishing a new baseline rate of 10 percent. Bessent remarked that both countries effectively represented their national interests and expressed a mutual desire for balanced trade, noting that the U.S. would continue to pursue this goal.
The step-down from high tariffs for at least 90 days was viewed positively by the market, which had already anticipated favorable outcomes from the recent trade talks in Switzerland. Specifically, the U.S. would decrease tariffs to 30 percent while China would lower theirs to 10 percent, down from previous levels of up to 145 percent and 125 percent, respectively.
This development prompted a surge in the dollar’s strength, challenging local resistance levels. However, market analysts expressed skepticism about the sustainability of this move, cautioning that it might only provide short-term benefits given the underlying long-term uncertainties. There were also warnings about potential risks for EUR/USD and USD/JPY if certain resistance levels were not regained soon.
Read more: U.S. and China announce trade deal: Stock markets, dollar surge on lower tariffs
Dollar strengthensÂ
Following the announcement, the dollar strengthened against other major currencies, and markets saw a boost. This news helped alleviate concerns about an economic downturn triggered last month by President Trump’s increase in tariffs aimed at reducing the U.S. trade deficit.
Bessent shared these insights alongside U.S. Trade Representative Jamieson Greer after discussions in Switzerland, where both sides acknowledged progress in addressing their differences. They conveyed a mutual consensus on avoiding a decoupling, emphasizing that the high tariffs had effectively acted like an embargo, which neither side desired.
The Geneva meetings marked the first in-person discussions between senior U.S. and Chinese economic officials since Trump’s return to office and his implementation of a global tariff strategy, which included significant duties imposed on China. Since assuming office in January, Trump had raised tariffs on Chinese goods to 145 percent, in addition to those introduced during his previous term and the tariffs imposed by the Biden administration.
On Sunday, the White House announced a tentative trade agreement with China following two days of high-level negotiations in Geneva. This announcement came after Bessent reported substantial progress in talks with Chinese Vice-Premier He Lifeng aimed at diffusing the trade war. He characterized the meetings as productive and indicated a full briefing would follow later.
Greer noted that the rapid pace of the agreement suggested that the differences between the two nations might not have been as significant as previously thought. He emphasized the importance of the swift resolution and the national emergency declared by the president, expressing confidence that the agreement would help address it.
