Tariff escalation to cause global industrial downturn

The significant escalation in US tariffs since early April is set to generate a shallow recession in global industry, though growth will remain positive in annual terms. We have downgraded our global industrial growth forecast from 2.6% to 1.6% in both 2025 and 2026.

What you will learn:

• The largest forecast downgrades have been made in the US, where we expect manufacturing activity to contract by 0.9% in 2025 and 1% in 2026. The tariffs are expected to lead to a sharp increase in US goods prices, especially in sectors reliant on imported inputs.
• A major contraction in US imports of 15% relative to our previous baseline will damage export demand in its major trading partners. We have made sizeable downgrades to industrial activity in China, Japan, Canada, Mexico, and Korea as a result.
• The tariffs will also prolong the European industrial downturn. But further out, other factors will provide a positive offset, including the huge German fiscal package announced in March and greater EU impetus for defence spending.
• Industry will lose out disproportionately from the tariff hikes while services will be more insulated.
• The tariff hikes will have a scarring impact on global industry. Should they persist, as our baseline assumes, this will cause a long-term decline in world trade as a share of GDP.

Download the full report to learn more.