Banking giant cuts global economic growth forecast
Barclays has revised its global economic growth forecast for 2025, predicting a slowdown to 2.9%, down from 3.3% in 2024.
The shift comes as the bank anticipates further disruption caused by tariff uncertainty and escalating trade tensions.
In its latest Global Outlook report, Barclays cautioned that policymakers, particularly in the United States, are “at a crossroads,” with the potential for a global recession if mismanagement continues.
According to Ajay Rajadhyaksha (pictured), global chairman of research at Barclays, April 2 now looms as a day of reckoning, when the world will learn the scale of the new tariffs the US is proposing. He noted that if trade tensions escalate further, a recession across developed economies in 2025 would become a realistic possibility.
Barclays has adjusted its investment strategy, now favouring fixed income over global equities for the first time in several quarters. The report highlights that markets may be underestimating the risk posed by rising tariffs and ongoing policy uncertainty, which could lead to further volatility.
“We have been overweight global equities over fixed income for many, many quarters – even as valuations looked increasingly stretched,” Rajadhyaksha stated. “But for the first time in years, we find ourselves genuinely worried about risk assets.”
The report cites growing policy uncertainty in the United States as a key driver of market volatility. The Trump administration’s aggressive approach to tariffs and immigration policies has introduced significant uncertainty.
“The first two months of Trump 2.0 have very much been of the latter variety,” Rajadhyaksha said. “Practically, every week has brought a new headline that has caused high market volatility.”
Barclays highlighted how recent US actions, including unexpected 25% tariffs on Mexico and Canada and additional 10% tariffs on China, have shaken market confidence. These developments, coupled with fluctuating exemptions and unclear timelines, have left investors uncertain about the future of global trade.
The Barclays report suggests that the economic consequences of prolonged tariff uncertainty could be severe. If the US proceeds with imposing 25% tariffs on Mexico and Canada, it could shave an additional 25-30 basis points off full-year US growth. A further escalation of tariffs on European exports could push the euro area into recession by 2025.
“Blanket 25% tariffs (which Trump has threatened) would be a much bigger hit, pushing the EA into a recession in 2025,” the report stated.
In China, while technological advancements in AI and robotics offer long-term optimism, the real economy remains fragile. Slowing export growth and ongoing struggles in the real estate sector continue to weigh on China’s outlook. Barclays forecasts Chinese growth at 4.3% for 2025, below market consensus.
The report suggests that governments still have an opportunity to correct course and mitigate some of the damage caused by trade tensions. However, if trade wars and policy instability persist, the risk of a deeper global slowdown becomes more pronounced.
Given the current climate, Barclays is recommending a more defensive investment approach. The bank is advocating for an overweight position in global fixed income over equities, while also suggesting higher cash allocations until there is more policy clarity. Rajadhyaksha cautioned that while European equities have outperformed US markets in early 2025, their performance remains closely tied to US economic developments.
“We recommend being overweight global fixed income to global equities, but with little enthusiasm,” he added, underscoring the cautious tone of the report.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
