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Forecast updates for UK in October reflect modest Trade Tariffs – Abating Threat, but
improvement for 2025, being revised up to 1.3 per cent (vs 1.2
per cent in July), considering healthy activity witnessed during Uncertainty Still Persistent
first half of 2025. The US-UK trade deal, and calibrated easing
of policy rates also provide a cushion against external Since the beginning of 2025, there has been a persistent
headwinds. However, the 2026 forecast is now pegged at 1.3 uncertainty around the US’s trade policy and tariff rates. The
per cent, lower than 1.4 per cent in July, as escalating cost of abrupt change of tariff rates, affected in April with
living and weak external demand weigh down on prospects. subsequent revisions in the following months have elevated
unpredictability for nations and businesses alike. This has
Canada is expected to grow by 1.2 per cent and 1.5 per cent in brought the average trade-weighted effective US tariff rate to
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2025 and 2026 respectively, 0.4 percentage points lower in historic highs (19.9 per cent as on 20th October 2025 ) – a
each year than the projections in July 2025. This comes in the significant jump from 2.3 per cent at the end of 2024.
backdrop of rapidly changing international trade scenario and However, recently concluded trade agreements have helped
the country’s closely intertwined trade relationship with the lower the effective rate from the high of around 29.1 per cent
US. Growth in the first two quarters of 2025 (2.3 per cent and in April. Ongoing negotiations may also provide some hope,
1.2 per cent, respectively) reflected frontloading of exports in potentially limiting the negative impact for partner nations.
anticipation of higher tariffs, followed by a period of
significant slowdown in exports. However, under the The trade pacts are also likely to reduce the severity of
US-Mexico-Canada (USMCA) trade agreement, approximately impact on growth. According to estimates made by the
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85 per cent of the Canadian exports to the US remain Federal Reserve Bank of San Francisco in April 2025, the US
duty-free. This, along with fiscal support measures and a tariffs were expected to result in cumulative loss in real
relatively stable financial system could provide a cushion income by 2028 (from real income levels in 2024) of 1.0 per
against moderating growth. cent in the US, 2.7 per cent in Mexico, 2.0 per cent in
Canada, and 0.5 per cent in China. In the updated version
released on September 30, 2025, the losses were revised
The Euro Area (EA) is expected to grow at 1.2 per cent in 2025
(up from 1 per cent in July update), given its relatively greater significantly downwards to 0.1 per cent for the US, around
degree of resilience to tariff shocks from the US and 1.6 per cent for both Canada and Mexico, and 0.3 per cent
country-level fiscal policies. For instance, conditions such as for China.
financial resilience of the corporate sector, fiscal prudence,
robust service sector performance, and wage growth - In terms of impact on different countries, those with a higher
especially in Italy, Spain, and Greece - are working to support degree of exposure to the US market, like Canada and
regional growth. However, growth forecast for 2026 was Mexico, suffer the most (around 76 per cent of Canada’s and
revised downward to 1.1 per cent in October (from 1.2 per 81 per cent of Mexico’s exports were routed to the US in
cent in July), as risk factors including weak global growth 2024). Whereas for China, even though the largest share of
scenario, tariff uncertainty, and low consumer confidence its exports (15 per cent) were also destined for the US in
continue to weigh on growth prospects. 2024, its large economic size, relatively lower exposure to US
markets than Canada and Mexico, and export diversity
Amid elevated policy uncertainty, with potential negative provide it with greater insulation.
effects on private investment and consumption demand, the
safest and surest way to ensure continued recovery from Globally, channels through which higher tariffs are likely to
successive shocks is a stable and predictable policy affect growth (besides the direct impact on trade prices and
environment at the national, regional, and global levels. volume) include supply chain disruptions (which intensify
stagflationary impact) and difficulties procuring working
capital (which may further restrict supply). The high levels of
uncertainty and unpredictability that are still persistent, even
amidst trade agreements and negotiations, may work to
keep business climate tepid and new investment plans on
the backburner.

Inflationary impact of tariffs is likely
to be uneven, with pass-through of
costs, supply diversification as main
impact factors

2 S&P Global Tariff Tracker < https://www.spglobal.com/ratings/en/regulatory/article/global-tariff-tracker-as-of-oct-3-2025-s101627218>
The 2025 Trade War: Dynamic Impacts Across U.S. States and the Global Economy, Rodríguez-Clare, A, M Ulate and J Vasquez; versions 22nd April 2025 & 30th September 2025
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