Commonwealth Bank downgrades global economic growth outlook
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The news: Commonwealth Bank's economic insights team has "significantly" downgraded its outlook for the global economy, driven by the impacts of an escalating trade war between the US and China.
The numbers: CBA forecasts the global economy will expand by 2.4% in 2025, compared woth its previous estimate of 2.9%.
The context: CBA now expects weak growth in the US, recession in Canada and stagnation in Japan and the Eurozone.
Its analysts said the US government's "chaotic" tariff policy has "upended the global economic outlook".
While the end-state remains unclear, they noted the significant increase in US tariffs will stunt economic growth in the US and most large economies.
However, they believe the peak tariff rate of 41% has passed and expect the US' global effective tariff rate to settle at around 20% following negotiations.
They also expect national governments to support their economies with a mix of tax cuts and spending increases to absorb some tariff shock, helping the world economy improve going into 2026.
What they said: "Retaliation to US tariffs deepens the economic impacts on both the US and the retaliator," CBA's analysts said.
"Only governments in China and Canada have deployed significant retaliation against the US so far.
"If cooler heads do not prevail in a negotiation, the US and China are on track to substantially decouple their economies.
"Decoupling is well beyond the policy of selective derisking that governments in Europe, Japan and Australia pursue."
The source: CBA Global Economics
