Global growth fears rise as Japan slashes GDP forecast
Another ally of the United States has issued a warning in connection with the intensifying trade war led by President Donald Trump. The Bank of Japan has drastically reduced its forecast for the country's economic growth in 2025 by half—from 1.1% to just 0.5%.
On Thursday, the Bank of Japan significantly lowered its expectations for the growth of the gross domestic product for 2025. The new forecast anticipates growth at just 0.5%, a decline from the previous projection of 1.1% announced in January. Japan's central bank also lowered the growth forecast for next year to 0.7%, while the previous projection was 1.0%.
In an official statement, the Bank of Japan explained the reasons for this decision. "Japan's economic growth is likely to slow down, as trade policies and other actions across various jurisdictions lead to a slowdown in foreign economies and a decrease in domestic corporate profits and other factors."
Uncertainty related to U.S. trade policy
Japan's central bank also noted that the fluctuating situation regarding the trade war significantly complicates accurate forecasting. "There is no certainty about how trade policy and other actions in various jurisdictions will evolve or how foreign economic activities and prices will respond," the statement emphasized.
Japan is at the top of the list of countries with which the Trump administration is negotiating a trade agreement. During Wednesday's meeting with voters on NewsNation television, President Trump declared that he had reached "potential" trade agreements with Japan, South Korea, and India to replace the current "mutual" tariffs. However, he did not provide any details regarding these new agreements.
Trump seized the opportunity to use his well-known rhetoric. He asserted that the other party is dependent on the United States, while the U.S. does not share the same need for them.
He also added that he is not in a hurry to finalize any agreement. Experts point out that it is unlikely that the United States and Japan, despite their allied relations, will be able to quickly reach a comprehensive new trade agreement.
Global effects of the trade war
The lowered forecast for Japan came a day after the U.S. Department of Commerce reported that the trade war negatively impacted economic growth, causing the U.S. economy to mildly contract in the first quarter. Consumer spending slowed during this period, and businesses accumulated imported goods before the tariffs were implemented. As a result, imports exceeded exports, hindering GDP growth.
Also on Wednesday, China reported that its industrial activity in April contracted at the fastest pace in 16 months. This is due to massive American tariffs on Chinese goods and significant Chinese retaliatory tariffs on American imports.
Last month, the International Monetary Fund warned that a global trade war would slow economic growth, particularly in the United States. According to analysts, a prolonged trade conflict between the world's largest economies could lead to a long-term slowdown in the global economy.
