Policy uncertainty, tariffs and geopolitical risks weigh on global economy - Moody's Analytics

In its latest commentary titled "Global Outlook: Risks at Every Turn", the research firm said United States (US) policy swings have scrambled the outlook for growth and inflation, with heightened uncertainty undermining business investment and hiring.

"The main threat facing the world economy is the uncertainty created by US trade policy shifts," Moody's Analytics said.

Since taking office in January, US President Donald Trump has announced and rescinded multiple rounds of tariffs, including new duties on 14 economies unveiled on July 7, which were later extended to countries such as Algeria, Brunei, Iraq, Libya, Moldova, the Philippines and Sri Lanka.

Moody's Analytics said the rapid and inconsistent rollout of these measures has created a volatile environment, especially for global manufacturers.

"Traditional manufacturing hubs in Asia and Europe already grappling with higher input costs, weak domestic demand and rising competition from China stand to be most affected, as Beijing's aggressive push into advanced manufacturing challenges high-value exports from Germany, Japan and South Korea.

"Only Taiwan has avoided a sharper impact, buoyed by soaring demand for its advanced semiconductors amid the artificial intelligence (AI) boom," it said.

Moody's Analytics also noted that tariff-driven uncertainty surrounding growth and inflation has left central banks in a difficult position.

In the US, higher tariffs are expected to raise import costs and fuel producer and consumer price inflation even as growth slows, prompting the Federal Reserve to deliver two quarter-point rate cuts in the second half of 2025 due to a deteriorating economy, it said.

The report also highlighted multiple geopolitical flashpoints, including the war in Ukraine, instability in the Middle East, and shipping disruptions in the Strait of Hormuz, which could affect energy supply and add further inflationary pressure.

Moody's Analytics said China's economy is growing on the strength of robust exports but remains weak on the domestic front.

It said household confidence and spending remain weak, youth unemployment is stubbornly high, the property sector is struggling, and private sector investment is subdued, leaving domestic demand in the doldrums and the economy flirting with deflation as consumer prices have changed little since mid-2022.

Looking ahead, Moody's projects global gross domestic product (GDP) growth will slow to just over 2 per cent in 2025 and 2026, compared to nearly 3 per cent in 2024.

"US GDP growth is projected to average below 1.5 per cent in 2025 and 2026, down from nearly 2.8 per cent in 2024, while Asia and Europe will also face headwinds as weak domestic demand and sluggish exports dampen momentum, with fiscal policy in Europe expected to provide a floor under growth.

"China's GDP is expected to grow just over 4 per cent in 2025, as the trade war and weak domestic consumer demand make its 5 per cent growth target unrealistic, while India's economy is projected to perform more robustly, with GDP growth of around 6 per cent in both 2025 and 2026," Moody's Analytics said.

-- BERNAMA