Surging IT investment and wealth effects from buoyant equity markets are cushioning the impact of higher tariffs on the US economy, Fitch Ratings said. We have raised the world growth forecasts in 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.
The Agency forecasts 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, have lifted China’s 2025 estimate by 0.1pp to 4.8% but expect growth to slow next year to 4.1%.
US private investment forecasts have substantially been revised up 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 Fitch Chief Economist Brian Coulton.
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 there is a clearer idea of the scale of German fiscal easing ahead, which we expect will boost growth there substantially. Eurozone growth has also been revised to 1.4% in this year 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. It is estimated that the combined general government borrowing of the US and China will be equivalent to about $ 4 trillion, or 4% of global (Fitch20) GDP this year and next.
The forecasts suggest that policy interest rates in the US, eurozone and UK will be close to estimated ‘neutral’ levels by the middle of 2026. The Federal Reserve is expected 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. It is also expected that the Bank of England will cut rates three times in 2026 as unemployment rises markedly. No further cuts are expected from the ECB.
(Fitch Ratings)