KPMG Issues Stark Warning: US Trade Policy Uncertainty Threatens Global Growth
The global economy is navigating a precarious “geopolitical-driven slowdown,” with the lingering uncertainty surrounding US trade policy identified as a primary drag on growth prospects, according to KPMG’s latest quarterly economic outlook. despite a recent de-escalation in trade tensions, the report highlights a critical juncture where the trajectory of ongoing trade negotiations will critically determine the global economic outcome.
While KPMG initially anticipated a gradual global economic recovery in 2025 following a period of stabilization, this optimism is tempered by important headwinds. The report specifically points to the evolving stance of the Trump administration as a source of new challenges, even beyond the potential disruptions from announced US tariffs.
Even in the absence of ample trade norm disruptions, KPMG forecasts that the global economy will not return to its pre-pandemic trend. This is attributed to weakened supply chains and persistent geopolitical tensions, including the ongoing conflict in Ukraine. Furthermore, advanced economies face structural impediments such as aging populations, sluggish investment, and persistently low productivity growth, all of which constrain their long-term growth potential.
These trade-related challenges have further complicated the global policy landscape, leading to downward revisions in global growth forecasts. KPMG notes that progress on global disinflation has stalled or even reversed in some nations, creating a delicate balancing act for policymakers. Services inflation remains elevated, while goods inflation has recently ticked up. In this habitat of weakening growth, some nations may need to ease monetary policy to provide support.
Fiscal policy is also poised to reignite existing dilemmas, possibly exacerbating fragilities within government balance sheets. KPMG suggests that a reversal of globalism might necessitate short-term fiscal support to bolster growth, alongside long-term commitments to increased defense spending. Though, government budgets are already under pressure, with rising debt-to-GDP ratios prompting discussions about national debt sustainability.
These concerns are reflected in long-term bond yields, influenced by trade policy, future inflation, growth prospects, and debt management. This dynamic is expected to further increase finance costs and interest repayments.
Despite these sobering assessments, KPMG emphasizes that multiple economic pathways remain possible. The outlook suggests that if ongoing dialog successfully eases tensions, the disruption to global trade links could be significantly less severe than implied by recent reciprocal tariffs and retaliatory measures.
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