Global economic growth is expected to be significantly and immediately curtailed as a result of the ongoing US trade actions, global advisory firm Oxford Economics warned in a recent webinar on supply chain realignment amid tariff uncertainty.

Oxford Economics corporate advisory lead for Europe, the Middle East and Africa Marcos Casarin stated that the tariff regime introduced under US President Donald Trump had prompted Oxford Economics to revise its global growth forecast for 2025 and 2026 downward by 0.5 percentage points, bringing it to 2.3%.

Casarin reported that the US GDP growth forecast for this year had also been sharply reduced, from 2.5% prior to the US elections last year, to just 1.2%. He added that Oxford Economics expected the US economy to be 2% smaller in 2026 than originally forecast, with risks remaining skewed to the downside.

“It's important to mention that this pace of growth that we expect for 2025 is actually the weakest pace of growth since 2001, if we exclude the global financial crisis of 2008/9 and also the pandemic in 2020,” Casarin said.

He explained that the effect of tariffs on growth would be comparable to a tax hike, but with a compounding effect owing to amplified uncertainty.

As a consequence, Casarin confirmed that Oxford Economics had dramatically cut US growth projections for 2025, emphasising that the announced tariffs were now considered worse than the organisation’s previously modelled ‘full-blown Trump’ scenario.

He noted that Chinese authorities would likely manage to contain only part of the fallout from US-imposed tariffs and declining housing wealth.

Meanwhile, Europe’s major economies were said to be underperforming, although he forecasted that growth in Germany would receive a boost from higher defence and infrastructure spending beginning in 2027.

The broader impact of US tariffs had, according Oxford Economics, triggered a widespread downgrade in the firm’s global growth outlook for 2025. While the US experienced direct effects, the global spillovers were mainly demand-driven, particularly impacting export-heavy economies closely tied to the US, including Mexico, Canada and Vietnam.

Oxford Economics director and corporate advisory head Martina Bozadzhieva| highlighted that countries with significant exposure to automotive exports, such as South Korea and Japan, would be especially vulnerable to sector-specific tariffs.

By contrast, services and tourism-led economies like Spain, and larger, domestically-driven markets such as India, were expected to experience a relatively limited impact in the short term.

Though the global demand outlook has weakened, Casarin expressed confidence that a worldwide recession would be avoided. He suggested that corporates may need to revise their demand expectations, especially for the US, and adopt contingency strategies to mitigate underperformance against 2024-end plans.

He noted, however, that elevated costs would likely challenge corporate profitability. Tariffs were said to be eroding margins in the US while simultaneously introducing competitive distortions and market dislocations elsewhere. These conditions were expected to complicate pricing strategies, margin assumptions and corporate profitability planning for this year.

Oxford Economics research corporate advisory lead for North America Alex Mackle emphasised that businesses were now operating in a climate of exceptional uncertainty.

He observed that, beyond the direct effects of tariffs, there remained significant ambiguity surrounding the policy environment for the remainder of this year, with even less clarity about what 2026 might entail.

He warned that this uncertainty could hinder competitive strategies, delay capital investments, distort long-term planning and increase short-term operational volatility.

“The tariff uncertainty and trade policy uncertainty is creating a very difficult environment for business investment, full stop.

“So in the very near term . . . these announcements, these shifts in policy that are being implemented and then dialled back very suddenly, that creates a very difficult investment environment for both domestic and international investors into the US, especially when you don't know how that's going to kind of change on a day-to-day basis,” Mackle said.

Casarin noted, however, that global consumer markets were still projected to expand this year, albeit at a slower pace than previously anticipated. He explained that both the US and China were expected to decelerate sharply as a result of their trade confrontation.

While European households were said to possess healthy balance sheets marked by strong savings and low debt, Casarin said consumers remained hesitant to increase spending.

Despite the gloom, Casarin identified several regional bright spots. The Middle East, supported by diversification and immigration, was forecast to outperform.

Similarly, Central and Eastern Europe were expected to benefit from immigration and rising living standards, while Southern Europe would gain from tourism. India, with its inward-facing economic structure, was projected to remain comparatively resilient.

He warned, however, that elevated uncertainty would create strong incentives for firms to defer investment, hiring, and other major expenditures. He noted that this drag on demand could potentially lead to broader retrenchment in both employment and capital expenditure.

Oxford Economics estimated that the rise in trade uncertainty experienced so far this year was consistent with a 4% decline in business investment across the US and China.

Casarin cautioned that if uncertainty levels failed to return to those seen in 2023, cumulative investment losses could surpass 10% over the long term.