TAIWAN– With global tensions and uncertain trade policies, the world economy faces challenges between a likely slowdown and the risk of further shocks Colface reports. Decisions on tariffs by the Trump administration and ongoing conflict in the Middle East are shaping what could be an unpredictable economic climate for 2025 and 2026.
In response to these conditions and current measures, Coface Risk Review has lowered its outlook for 23 industry sectors and 4 countries.
Main trends:
- US tariffs remain at high levels, even as some have been paused or reduced
- Nearly 80% of developed countries reported more business defaults in the first quarter of 2025 than in 2024
- The metal industry has been hit hardest, with automotive and chemicals also under strain
- Other downgraded sectors include information technology and retail in the US, and textiles and clothing in China, which are feeling the impact of tariffs.
Global economy: living with uncertainty
The outlook for the global economy is now more uncertain, shaped by political events and trade moves led by the US President. The return of tariffs after a 90-day break—on July 9 for most countries and August 12 for China—could impact global growth. Predictions suggest a slowdown in growth at 2.2% in 2025 and 2.3% in 2026, but if tensions rise, growth could drop below 2%.
Inflation is also under pressure. Stability may not last, and it could hit 4% in the US by late 2025, especially if energy prices climb. Central banks are expected to keep a cautious approach. If US inflation is controlled, the Federal Reserve may lower rates in autumn 2025. The European Central Bank plans to continue cutting rates, but says it is nearing the lowest point it will go.
In Europe, uncertainty is rising as countries may finally start tightening their budgets. Germany has launched a stimulus plan, but its full impact is still unclear.
Middle East conflict and oil supply: a tricky balance
The ongoing Israel-Iran conflict has brought fresh worries about oil supply. Any disruption or blockage of the Strait of Hormuz, which handles 20 million barrels a day (about 20% of the world’s supply), could push oil prices above $100 a barrel. Without these tensions, however, rising output from countries outside OPEC+ and weaker demand from trade tensions could see prices fall. OPEC+ is also putting 2.2 million barrels a day back into the market. Unless there is a major crisis, prices are likely to remain very changeable but stay between $65 and $75 a barrel.
Developed economies: both strong and exposed
In the US, uncertainty around how the economy will cope with tariffs is affecting confidence. Consumer outlook is down, but jobs have held steady. The small drop in GDP in the first quarter reflects companies building up stock as a precaution.
Across Europe, Germany saw some growth in early 2025, while France’s economy remains quiet. Italy may lose momentum, but Spain continues to benefit from tourism and EU funds.
Emerging economies face bigger risks from trade changes
China enjoyed a jump in exports during the recent pause on tariffs, but its prospects remain fragile. India’s growth stayed above 7% in the first quarter, yet spending has started to cool and the government has less room to spend.
Mexico is feeling the strain from global trade uncertainty, with no growth expected in 2025. Brazil, after a strong year in farming following losses from El Niño, now faces contraction due to high interest rates (the key rate is up to 15%). In Argentina, the economic policy known as Mileinomics is driving growth. Even with low foreign currency reserves, Argentina could achieve 5% growth in 2025 and 3.5% in 2026.
Metals industry: global steel overcapacity
The metals sector is under pressure, facing a surplus of 600 million tonnes of steel in 2024, a quarter of total world production. Weak demand, energy costs, and new steel tariffs are making life tougher for producers, particularly in Canada, Mexico, and Europe.
Canada: tariffs weigh on growth
With three-quarters of its exports going to the US, Canada is one of the hardest-hit countries by the trade disputes. Growth momentum faded after a burst in late 2024. Consumer spending and investment are both down, and unemployment stands at 6.9%, the highest since 2017.
According to Coface, exports fell sharply in April as firms rushed to avoid tariff hikes. The car and metal industries, hit with tariff increases up to 50%, have been especially affected. The upcoming review of the USMCA agreement, expected by the end of 2025, could add to Canada’s economic worries.
Read the full study here.
COFACE: For Trade
Coface has supported companies worldwide for nearly 80 years, helping them grow and manage risks in uncertain times.
Coface serves 100,000 clients in around 200 countries and offers a range of services including Trade Credit Insurance, Business Information, Debt Collection, Single Risk Insurance, Surety Bonds, and Factoring.
Each day, Coface uses its experience and advanced tools to support trade, both at home and overseas. In 2024, Coface had over 5,200 employees and a turnover of about €1.845 billion.
