Fitch Ratings - Surging IT investment and wealth effects from buoyant equity markets are cushioning the impact of higher tariffs on the US economy, Fitch Ratings says. We have raised our world growth forecasts in our December Global Economic Outlook (GEO) but still expect growth to slow to 2.5% this year and to 2.4% in 2026, from 2.9% in 2024.

We forecast US GDP growth at 1.8% this year and 1.9% in 2026, revisions of +0.2pp and +0.3pp, respectively, from the September GEO. We have also raised eurozone GDP growth by similar amounts. We have lifted China’s 2025 estimate by 0.1pp to 4.8% but expect growth to slow next year to 4.1%.

We have substantially revised up our US private investment forecasts since September. IT capital spending accounted for almost 90% of US GDP growth in 6M25, although IT imports have also increased. And the AI-related equity market boom could be adding up to 0.4pp to consumer spending.

“The AI revolution has prompted additional private-sector spending on a scale that is heavily cushioning the adverse impact of tariff hikes on the US economy. The robots have come to the rescue”, said Brian Coulton, Chief Economist at Fitch.

Upward revisions to US private capex forecasts have helped offset the drag from the sharp rise in the US effective tariff rate (ETR) to an estimated 13.6% from 2.4% in 2024. The estimated ETR is lower than the 16% assumed in September but it is still the highest since 1941.

Buoyant equity markets and booming AI-related capex are contributing to concerns about ‘bubble’ risks in the financial system. US equity markets certainly look very rich on multiple valuation metrics. But the capex boom has momentum and has not yet been associated with significant increases in corporate indebtedness.

Fixed-asset investment in China has been falling in annual terms since June, an unprecedented pattern outside the Covid-19 pandemic. Gross fixed capital formation accounts for about 40% of GDP and is declining in real terms; this is partly explained by some pull-back on investment projects in response to the authorities’ ‘anti-involution’ campaign. We expect investment to stabilise and then recover mildly next year; but with deflation entrenched we have not revised up next year’s growth forecast despite the recent fall in US tariffs towards China.

The eurozone avoided an expected GDP contraction in 3Q25 following earlier US export front-running. Credit dynamics are improving, and we now have a clearer idea of the scale of German fiscal easing ahead, which we expect will boost growth there substantially. We have revised up eurozone growth to 1.4% in 2025 and 1.3% in 2026, slightly faster than potential.

Some of the recent resilience in global growth is simply the corollary of rapidly rising public debt. The world’s largest economies are providing large-scale support to aggregate demand through public borrowing. We estimate that the combined general government borrowing of the US and China will be equivalent to about USD4 trillion, or 4% of global (Fitch20) GDP this year and next.

Our forecasts suggest that policy interest rates in the US, eurozone and UK will be close to estimated ‘neutral’ levels by the middle of 2026. We expect the Federal Reserve to keep rates on hold in December, but the FOMC will cut rates three times by next June as the tariff shock stabilises and the unemployment rate edges up. We now expect the Bank of England to cut rates three times in 2026 as unemployment rises markedly. No further cuts are expected from the ECB.

‘Global Economic Outlook – December 2025’ is available at fitchratings.com or by clicking the link above.