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Investing.com - The impact of sweeping U.S. tariffs is expected to ripple through the world economy in the second half of 2025, according to analysts at Barclays (LON:BARC).
Markets have been on the lookout for developments around U.S. President Donald Trump’s aggressive trade agenda, with focus particularly zeroing in on the expiration early next month of a delay to his punishing "reciprocal" tariffs on a host of countries.
Meanwhile, other elevated levies remain in effect, including universal 10% tariffs as well as duties on items like steel and aluminum.
Trump has argued that the tariffs are necessary to right perceived trade imbalances, raise government revenues and reshore lost manufacturing jobs, while many economists have flagged that the levies could fuel inflationary pressures and weigh on broader economic activity.
Recent data points have suggested that, despite the tariffs, U.S. inflation has stayed benign and the domestic job market has been relatively solid. Yet worries remain that the impact of the trade taxes may still be coming, with the Federal Reserve notably adopting a wait-and-see attitude to future policy changes until more clarity around the trajectory of the economy emerges.
Writing in a note to clients, the analysts at Barclays led by Amrut Nashikkar said they anticipate that the effect of the tariffs will "work their way through" the world economy in the last six months of 2025.
"We expect weak growth, but the U.S. will escape an outright recession," the brokerage said, adding that the "[t]ariffs will push U.S. core inflation over 3%, keeping the Fed on the sidelines for the next few meetings." Core inflation, which attempts to gauge underlying price pressures by stripping out more volatile items like food and fuel, stood at 2.8% in May.
The world economy "should come through the trade war relatively unscathed," and lower interest rates, German stimulus plans and a drop in policy uncertainty should help growth rebound in 2026, the analysts argued. They forecast fourth quarter to fourth quarter global economic expansion of 2.2% in 2025 and 3.1% next year.
Elsewhere, they anticipate that Republican lawmakers in the U.S. Congress will fail to pass a massive tax-and-spending bill by a self-imposed July 4 deadline, but eventually approve it before legislators break for an August recess.
Against this backdrop, the analysts predicted that financial markets will "increasingly tune out tariff and tax headlines" and turn their focus instead to "macro data and the extent to which the artificial intelligence dividend will boost corporate earnings, especially for large tech firms."
Equities are preferred to fixed income in this environment, they said, noting that "the path of least resistance" for stocks "still feels higher as momentum is strong, growth/earnings/liquidity conditions remain broadly supportive, and neutral positioning [...] leaves investors with dry powder to chase/buy dips."
Financials, health care, and mega-cap tech firms were all recommended by Barclays.