南方財經全媒體記者 施詩 李依農 廣州報道

As we move past the super electoral year of 2024, all eyes are now on 2025. With the return of “Trump 2.0,” what impact will this have on global trade and economic performance? In an exclusive interview with SFC reporter, Brian Coulton, Chief Economist at Fitch Ratings, shares his outlook for the year ahead.

Coulton discusses the surprising resilience of the U.S. economy in 2024, driven by strong consumer dynamics, and examines how this momentum may continue into 2025, despite challenges like rising tariffs and potential policy shifts. He also offers insights into regional trends, from China’s cautious recovery to Europe’s modest rebound, while highlighting the broader implications of tariff increases under the new U.S. administration. According to Coulton, Fitch expects global GDP growth to slow from 2.8% to 2.6% in 2025, a modest deceleration rather than a severe downturn.

SFC Markets and Finance: As we are at the beginning of 2025, would you like to go over the global economy in 2024 first？

Brian Coulton: I would say it was a year that turned out quite a bit better than expected for the world economy. We had global economic growth of about 2.8%, slightly above the long-run average. The biggest surprise was the U.S. economy, which proved more resilient than we and most forecasters expected, driven mainly by U.S. consumers, whose spending was much more dynamic than anticipated. A gradual slowdown in consumer spending didn’t materialize, partly explained by upward revisions in third-quarter data, showing much higher household income growth than previously estimated, indicating a more resilient household sector. The saving ratio and household income were both revised upwards, making this a positive surprise.

The European economy remained sluggish, but consumer spending began improving in the third quarter, as expected, driven by recovering real wage growth. European consumers had been hit hard by inflation in 2021-2022, partly due to the energy price shock, but headline inflation has dropped significantly, while wage growth remains elevated, boosting consumption, though mildly. This was a modest recovery, aligned with expectations.

As for China, while growth slowed, there were significant shifts in macroeconomic policies from August or September onwards, which are now starting to show benefits in the latest data.

SFC Markets and Finance: Like you said, China's economy reached its 2024 growth target. So how do you comment on China’s economy in 2024?

Brian Coulton: We've already started to see some evidence that the policy easing was helping. We saw in November that housing sales on a year on year basis turned positive, and we had another positive number for this. And I think that sort of, although it's not going to translate any time soon to a recovery in housing starts, we don't think that because I think there's a large overhang of inventory, which means that the read through from stronger sales or stabilizing sales to starts will be delayed. But nevertheless, that pickup was important.

I think another development was just the export growth remains strong right through the end of the year. Now it's possible that some of that strength is the U.S. importers from China kind of getting their orders in, before we see what's expected to be a quite significant increase in U.S. tariffs on Chinese imports later this year. So it's possible that there's been some sort of bringing forward. But I think even before the U.S. election result, we were positively surprised by the export performance. So I think that's been a big factor. But we also saw industrial production, and we saw retail sales start to pick up and I do think that those early signs of stabilization in the housing market that we're maybe now seeing, are very important for domestic demand in China and broader confidence.

The domestic picture is looking a little bit better as well. I would say, partly, that policy easing which was both on the monetary side, but also on the fiscal side, we see that in the credit numbers where the local bond issuance has really accelerated in December.

SFC Markets and Finance: Do you expect Chinese government will release more measures?

Brian Coulton: I think we do expect a further widening of the fiscal deficit in 2025, and we expect further interest rate cuts. A lot will depend on exactly what president elected Trump decides to do. And we do think it's a question of when rather than if.

But I think that the Chinese authorities will probably be looking to see, make an assessment of any tariff changes that we see what they would do to the economy. And that will probably have some influence on their domestic policy.

I expect that we taking some comfort from the latest numbers showing a slight improvement in the economy at the end of the year.

SFC Markets and Finance: I think Trump's policy not only affects China but also affects other countries. I know you conduct a research on that. Would you like to share some results of your research?

Brian Coulton: As we're putting together our forecast for global growth in 2025, we had to decide what to assume about the U.S. trade policy.

Our view was that it did make sense to expect there to be a pretty big increase in the U.S. tariff rate. So what we've assumed is that the U.S. tariff rate goes up from, and this is an average for the country as a whole, the U.S. imports as a whole, the average effective tariff rate is currently about 2.3%, we assume that that would rise to 7.5% to 7.75%. So really big increase, 5.5 percentage point increase in that tariff rate. A big chunk of that explained by our assumption on China.

We think it's going to be a really big increase in the tariff rate on China. We think for the basket of Chinese exports to the U.S., which are currently subject to tariffs, which is almost 60% of the total Chinese exports to the U.S., for that subset, we see what we call the dutiable tariff rate, the dutiable rate rising to about 60%. So that amounts to a 25 percentage point increase overall in the tariff rate on Chinese imports. And so that accounts about 3.5 percentage points of that 5.5 percentage point overall increase. But we've also assumed that the tariff increases are broad-based, so they go up, that the dutiable rate goes up to 25% on Canada and Mexico and 10% on the rest of the world.

So, that's quite different to what we saw in the first U.S. - China trade war under the first Trump administration, where there were some very targeted industry specific measures towards Europe, but it was primarily China alone that suffered the rise in the U.S. tariffs. We see a much more broad based increase this time.

SFC Markets and Finance: How will the US tariffs influence Europe?

Brian Coulton: It will definitely be a negative. It comes against the backdrop of domestic growth challenges, the recovery and consumption that I spoke to you about. I know it's definitely coming through in the data, but it is proving to be weaker than we expected. The saving ratio is rising, so against that backdrop, this is another negative shock.

One of the economy that will probably be most affected by that is Germany, and that's reflecting the fact that Germany is a very open economy, exports are very large as a share of German GDP. And the U.S is a very important trade partner. Even before any tariff changes, the German export machine was kind of struggling a little bit, we're seeing some challenges in the auto sector, for instance.

We did downgrade our Eurozone growth forecasts in the latest edition of our GEO, partly because of the assumption of this 10% tariff rate, dutiable tariff rate on EU imports. So it's not a huge negative, it's not as big the effect we think will be, because the tariff of such for China is much bigger, and for Mexico and Canada, their exposes to the U.S. is much larger in terms of their exports to the U.S., a much bigger share of their GDP than is the case for most other countries.

So it's not as damaging as we believe it will be in those in China, Mexico and Canada, but it is a material negative shock at a time when the domestic economy is looking quite weak.

SFC Markets and Finance: Do you think Trump’s policy will lead the inflation to rise again?

Brian Coulton: We do think that U.S. tariffs will add to inflation in the U.S. We don't expect U.S. trading partners to sort of mechanically reduce the price of their exports to offset the tariff increases, that hasn't proven to be the case in previous trade wars. So the burden of the higher U.S. taxes on imports has been born in the United States.

Now, it depends on, that could partly be absorbed by U.S. importers and retailers narrowing their margins and sort of limiting the pressure of the higher tariffs to the U.S. consumer prices. But some of it will go through to higher U.S. inflation and we have increased our U.S. inflation forecasts quite significantly, in the latest Global Economic Outlook forecast.

SFC Markets and Finance: If the inflation is rising, will the Fed stop cutting rates?

Brian Coulton: We definitely think the Fed is going to slow down the pace of monetary easing. They started with a big bang of 50 basis point cut in September, then they followed up at each of the meetings after that with further cuts of 25 basis points. So far, they've moved pretty rapidly.

We expect them to start skipping meetings, because of these upward pressures on inflation, and risks of the inflation turns out higher than they or/and most the market expected. That's not just the tariff. They have to consider, there's also going to be a squeeze on net immigration into the U.S., which will tighten labor market conditions. And as I mentioned, the consumer spending is holding up pretty well, it's growing nearly 3%, which is faster than the U.S. growth potential. So that in itself is a source of a potential overheating.

For all those reasons, we think the Fed is going to be a bit more cautious now about the path they choose to bring interest rates back down towards a more neutral level. We still think there's scope for them to cut rates 3 or 4 times this year, but we think that will be it. And, probably most of the impact of tariffs and immigration will probably be in 2026, that we see that impact coming through more strongly. And we don't see the Fed cutting rates beyond this year.

SFC Markets and Finance: So how many basis points will the Fed cut this year?

Brian Coulton: December GEO factored in 100 basis points. So 4 cuts. Every other meeting in 2024, as you'd have seen the last Fed meeting, the messaging that went alongside the cut was less dovish.

There was some suggestions in the dot plots, which the FOMC members set out where they're thinking the interest rates will be going, that was signaling more like 2 cuts and that's sort of in line with what the market is expecting. But those dot plots have not been a great guide to Fed policy in the past. And those projections were put forward before the meeting, different FOMC members might make different assumptions about this tariffs.

I don't think the Fed is going to preempt tariff policy and sort of make a judgment call or a forecast as to what the tariff policy will be, and then change the path of monetary policy in anticipation of that. I think they will wait and see what happens. It could be some time before we know what's going to happen. We still think there's the goal for the Fed to continue to bring down rates, probably more slowly through the course of this year.

SFC Markets and Finance: Do you think the US economy will still perform strong in 2025?

Brian Coulton: You've got to remember those consumer dynamics are pretty powerful, as I mentioned, it wasn't just the level of how selling income that was revived, that the ongoing growth rate is stronger. The saving buffers look larger than we had previously estimated. The job market is still looking okay. We've got employment growth of about 1.4% year on year. We've got wage growth anywhere between 4% and 4.5%. So you got those two numbers up, that's pretty decent growth in household income, household balance sheets don't look too bad at state.

We've had strong growth in the equity market in the last 12 months, that's boosted wealth. So that doesn't look like there's many near-term headwinds on the consumer. And then fiscal policy remains very loose. So if anything, we've got a forecast of 2.1% growth this year for the U.S. The risk there, I think is to the upside, despite the impending increase in tariffs.

SFC Markets and Finance: How about Europe?

Brian Coulton: We do think the European economy is going to see a modest recovery this year, and it's, as I mentioned, coming off a very weak backdrop.

But we are seeing this pickup in real wages and real incomes, and the consumer side of things is picking up. The ECB is cutting rates, and there’s already some evidence that is leading to looser credit conditions. So we're seeing surveys of bank credit conditions, how willing they are to lend to corporate and particularly households, the credit standards are easing at the margin, and we're also seeing in the loan growth data, things are bottoming out, starting to pick up, so that's another positive.

But the risk comes from what we're seeing signs of increasing caution among Eurozone consumers. So although their income is picking up, their consumption isn't picking up as quickly. So we're seeing a rise in the saving ratio or a fall in the share of income that is consumed. And that's been quite striking in the recent data, particularly for France, Germany.

Given we've had 2 or 3 years of very sluggish growth, now it looks like people are starting to worry a bit more about the job prospects. We have a European survey of consumers that shows the balance of households concerned about losing their job in the next 12 months has gone back up quite sharply. It's now back up to where it was in late 2022 in the midst of the energy shock. So that's an important downside risk, I think, to our forecast of a modest recovery.

SFC Markets and Finance: Which country will drive the European economy this year?

Brian Coulton: What's been interesting in the European growth data over the last couple of years has been the resilience of the so-called periphery. So, Italian growth, Spanish growth, smaller countries, Ireland, Greece, Portugal, they've been doing extremely well.

It's been the two biggest economies, or particularly Germany, that has been struggling. Now, obviously, Germany was hit hardest by the Russian gas shock, and those sorts of severe energy shocks, it takes a long time for economies to recover and adjust to those. So you've got to bear that in mind. But it does look as Germany is the under-performer, where we see prospects for growth in Spain.

I'm surprised that everyone on the upside think that's probably gonna continue, this decent growth in Spain. In Italy, we've got a big improvement in the share of investment in GDP and there's still some positives to come there from next generation EU funds and public sector investment. So, the Italian growth is not necessarily going to accelerate, but we don't see it falling off a cliff. And it's been better recently than for many, many years. In Germany, we've had two negative years now of GDP growth. The export sector is struggling even before we see any increase in tariffs. I think Germany is the one that we're all focused on.

SFC Markets and Finance: The UK is another story. What’s your view on the UK economy?

Brian Coulton: Again, you've got to remember, it's coming off a very low base. The UK growth has been very, very weak, we are now seeing interest rate cuts from the Bank of England, but we expect that to pick up this year.

We see four cuts from the Bank of England, that's going to help ease credit conditions. The last budget led to some sort of modest support for the economy in the near term, that was reflected in our forecast, and that dynamic that we have in the Eurozone of real wage growth next to recovery is also happening here in the UK. Wage growth is now running significantly above headline CPI inflation. So that decline in inflation is something that we think will help the household sector.

We've got a decent pickup in growth terms, it looks quite good by relative standards. But if you draw the chart of the level of GDP, you go back to 2019, the UK still has a lot of catching up to do. So, we shouldn't get too excited about that one year of decent growth that we've anticipated in 2025.

SFC Markets and Finance: I also want you to talk about Japan since Japan is in a different cycle. What’s your prediction of Japan’s economy?

Brian Coulton: What we've seen in Japan over the last couple of years is this sort of increasingly convincing sort of refraction story. So the economy particularly in nominal terms. So, the combination of real growth and prices, we're seeing a lot stronger growth in nominal GDP.

We've seen what's been called as a virtual U.S. wage price spiral emerging. So the first stage of the reflation was firms increase in prices, the weakening of the yen, kind of helped Japanese exporters that became profitable, was again weakened aggressively through that period in 2022 and 2023, when the rest of the world was raising interest rates aggressively. The Bank of Japan didn't move. So that divergence in Japanese monetary policy as the rest of the world tighten, that didn't lead to strong weakening of the yen and pushed up import prices in Japan, but it also made Japanese exporters very competitive. And there was a surge in profitability. But what followed from that is that the Japanese corporate sector was increasingly willing to grant stronger wage demands from workers. So we've seen a pickup in wage inflation as well.

All those things are feeding through to a positive dynamic with prices going up that leading to higher wage growth and that feeding back through to prices. So we've had inflation got to 2% plus now for quite a long time. So we do think that means that the Bank of Japan will be happy to continue to raise rates, a bit slowly and from what's still a very low level.

SFC Markets and Finance: We talked the US, Europe, China and Japan. Now Let’s move to the emerging market. How will the emerging market perform this year?

Brian Coulton: Emerging market growth has kind of been pretty decent. We haven't seen really sort of strong slowdown across the board in emerging markets. The Indian economy is holding up pretty well. Brazil is surprised everybody in terms of how strong growth has been there, the growth in Indonesia as well. I think big picture is it's a fairly stable growth story.

Remember, there were some huge declines in GDP in the pandemic years, and there was some of the expansion that we saw in 2023 was kind of ongoing catch up from that. I think that force is probably fading now, but the decline in inflation that we saw in the developed countries last year, that was also a feature of emerging markets. And so that's allowed some central banks to start cutting rates. That's not been true across the board. We have had Brazil raising rates very aggressively, but that's been a little bit of an idiosyncratic story, rather than across the board.

Broadly, I would say emerging markets are, central banks are in a sort of gradual easing mode. So that's helping. And the U.S. growth has been strong and U.S. import growth has been pretty strong. So, that's been helping. But, obviously, the tariff shock is a factor. There are some countries like Vietnam with a lot of exposure to the U.S., which are going to be hit by our tariff assumptions.

Normally, Asian economies are very open in terms of the share of exports in GDP. We have a shock to world trade because of U.S. trade policy. It is a region where trade matters, a lot of that trade does ultimately, even if it's not directly exports to the U.S. in terms of consumer goods, it's exports that go to a supply chain, through the supply chain elsewhere in Asia first, but ultimately end up in the U.S. So I think that is an important headwind.

The other thing that's been going on as the future part of Fed cuts has become more shallow just as the ECB has been sounded like they've been more lean to cut more quickly, that's led to a strengthening of the U.S. dollar and that tends to be negative for emerging markets. So some headwinds emerging, but nothing dramatic when you're looking at emerging markets as a whole, not a dramatic slowdown.

SFC Markets and Finance: Fitch forecasts global GDP growth to slow to 2.6% this year. What's the logic of this forecast?

Brian Coulton: So what lies behind that, geographically, what I've said about the U.S. economy, we do expect a bit of a slowdown this year. So growth was probably, as I say, 50%-75% percent range last year. We've got that slide to 2% this year, part of, because one of the things that was driving growth higher in 2024 was an earlier loosening of fiscal policy. So the government deficit widened in 2023 and first half of 2024. And I think that big widening was part of the story that helped growth.

Our assumption is that we don't get a repeat of that. So we don't really, we see that the fiscal deficit is going to be broadly stable in 2025, but compares to 2024, maybe decline a little bit. So, sort of the change in the deficit that matters for GDP growth, that's got to be slightly less supportive for growth in 2025. But I would say, if anything, the risk is to the upside. But that is mechanically, probably the one of the key drivers of the modest slowdown in global growth you have.

We do expect growth in China to slow because of the tariff shock, essentially it's gonna be cushioned by looser fiscal policy, but it's not gonna be completely offset. So we got 4.3% growth in China this year, down from the 5% that we just had for 2024. So the U.S. and China is slowing, Eurozone is picking up modestly, but picking up and that's dampening the slowdown a little bit. So 2.8% to 2.6%, not a severe slowdown at all and 2.6% not that low by the long run, historical grand standards.

SFC Markets and Finance: What potential risk will we face in 2025 besides the US tariffs?

Brian Coulton: We've made a relatively, we think it's a relatively aggressive assumption that we've made on tariffs, but it could be a lot worse. As I mentioned before, the assumption we've made is a 60% dutiable rate on Chinese exports, 25% on the dutiable basket of Canada, Mexico exports, and 10% on the dutiable rate for the rest of the world.

But if those numbers, those 60, 25, 10, if those apply to all imports from those regions, then we're looking at the tariffs shock that is three times as big. So instead of the tariff rate going from 2.25% to nearly 8%, go to 20% plus. If the increases is on that scale, that would be much more damaging for global growth. Would have a much bigger impact on U.S. inflation, potentially could move the dollar a lot more in terms of the Fed deciding they don't want to cut at all. Maybe even hike in rates towards the back end of the year and this year, which we just don't know what the tariff policy says there. There's a big uncertainty there.

SFC Markets and Finance: So do you think the global supply chain will continue rebuilding?

Brian Coulton: This is not a process that sort of all happens in a couple of years. But I do think that global businesses will be looking at a more fractured world economy. And they will be looking to sort of, insulate themselves against supply chain shocks or big tariffs in certain countries. But I think it's a process that takes place at the margin in terms of where does the new investment go, rather than when you build these supply chains over decades.

You can't suddenly change the place where you make stuff, it's just not possible to shift capital resources around that quickly. So I think it's a slow burn process, but 10 years time from now, they will probably look quite different, more diversified.

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