While the risks of a potential US recession in 2025 have receded, President Trump’s policies could create an “inflationary perfect storm”, a new report outlines.
The 11th edition of GlobalData TS Lombard’s Global Economic Outlook Executive Briefing notes that the current forecasts for the US economy in 2025 are for growth of 1.5% and inflation at 3%. However, it acknowledges potential risks to its growth forecast as a result of the unfolding tariffs agenda of US President Donald Trump.
The report goes on to say: “Recent trade deals indicate that the average US tariff will settle close to a 15% midpoint (well above our initial base case of an effective 10%), raising the risk that higher levels of deportations could cause further tightness in the labour markets and so see inflation accelerate beyond current market expectations.
“The President now has the $170bn in funding for new border and immigration controls. Despite the funding, it is unlikely that the administration can hit its top-line target of one million deportations per year. But even half that would be significant in today’s labour market, in the context of self-deportations and flatlining immigration.
“As we get closer to the midterm elections in September 2026, the political questions are whether deportations will be scaled back, if further tariff deals can come through to lessen the inflationary burden and how big the rebates will be, though these would end in inflation too.”
Beyond US inflation
Looking elsewhere, the report suggests that the policies of the new Trump administration “could catalyse growth in Europe, as governments are obliged to spend more under pressure from the US and its threats to cut its involvement in NATO”. It adds that, while the recent EU-US trade deal is “a bad one in absolute terms”, it is actually not so bad relative to the alternatives.
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By GlobalDataA deteriorating outlook is noted for the UK, with GDP having shrunk 0.1% month on month in May, while prices have continued to rise – although the report was published prior to the country’s better-than-expected Q2 figures being announced. The report adds, though, that “the Bank of England anticipated the summer ‘bumpy path’ to inflation at 3.7%, before a sharp fall later in the year”.
Meanwhile, an acceleration of US-China decoupling and more stringent controls on triangulated Chinese imports will reduce the broader emerging market benefits from the US-China fractures, it is suggested. “Trump’s policies, with likely higher US bond yields, are a risk for all emerging markets, but especially China, Mexico and South Korea,” the report forecasts.
