S&P Global to review all global forecasts after US tariff shock

Credit ratings giant S&P Global has said it is reviewing all its macroeconomic forecasts in the wake of Donald Trump’s sweeping world trade tariffs this week, a move likely to fuel concerns of a renewed wave of credit score downgrades.

The firm, whose ratings judge the creditworthiness of thousands of companies and more than 130 countries, said the scope and size of US President Trump’s new tariffs had exceeded most expectations.

It said it would publish its revised forecasts next week, although initial assumptions include a jump in US inflation that leaves it closer to 4% by the end of the year compared with the 3% it had previously factored in.

The impact on US GDP will depend on the level of retaliation from its trading partners and how the tariff revenues get used, especially if they fund tax cuts, S&P said.

Even in a scenario where there are tax cuts, and there is “relatively modest” retaliation though, GDP growth was still likely to be three-tenths to four-tenths of a percentage point lower than S&P's most recent forecasts.

“We still don't see a NBER-defined recession (depth, duration, and broad dispersion of weakness, not just two consecutive quarters of negative growth) in the next 12 months,” its analysts said in a report.

“But we acknowledge that the subjective probability of a recession within that time period has now likely moved up to 30%-35% from 25% in March.”

The rest of the world is also likely to see growth forecasts cut.

Large economies such as the eurozone and China are likely to see smaller adjustments, at about one quarter of a percentage point per year, whereas more open economies that trade heavily with the US are likely to see larger revisions.

“This is the case, for example, of Ireland and Switzerland in Europe and the Tiger economies in Asia-Pacific,” S&P said.

S&P did not give any predictions of rating moves, but its peer Fitch cut China's rating on Thursday and debt insurance costs have already risen for firms and countries seen as vulnerable on the assumption that there will be a wave of downgrades.

S&P’s analysts said they expected other countries to respond to the tariff moves in a number of ways.

Some are likely to target perceived vulnerable US industries and political districts rather than go for blanket tariffs, while some could use non-tariff measures and measures affecting services and goods flows.

“These potential countermeasures would put further downside pressures on growth,” S&P said. 

Reuters