Barclays Drops U.S. Recession Forecast After China Trade Deal

Eased trade tensions prompt Barclays to upgrade U.S. and eurozone growth outlooks

Trade Truce Prompts Economic Optimism

Barclays has revised its U.S. economic outlook, no longer expecting a recession in 2025 following a significant trade agreement between the United States and China.

In a note released Thursday, the bank raised its U.S. growth forecast for this year from -0.3% to +0.5%, and its 2026 forecast from 1.5% to 1.6%. The positive shift reflects reduced economic uncertainty after both nations agreed to roll back aggressive trade tariffs.

U.S.-China Deal Eases Tensions

The trade deal, agreed earlier this week, saw both countries lowering punitive tariffs and agreeing to a 90-day pause on further levies.

Key points of the agreement include:

• U.S. tariffs on Chinese goods cut from 145% to 30%, combining a 10% baseline levy with an additional 20% aimed at China’s alleged link to fentanyl trafficking.
• China reduced its retaliatory tariffs on U.S. imports to 10%.

This truce follows a wave of tariff hikes imposed by President Donald Trump earlier this year, sparking fears of a full-scale trade war. While the latest agreement marks a step forward, analysts note that tariffs are still at their highest since the 1930s, and remain above pre-2025 levels.

Eurozone Outlook Also Improved—With Caution

Barclays also lifted its growth forecast for the eurozone, now expecting flat GDP growth this year compared to a previous forecast of a 0.2% contraction.

However, the bank still anticipates a technical recession in the euro area in the second half of 2025, albeit milder than originally expected.

“We remain cautious about euro area growth,” Barclays stated. “Negotiations over reciprocal tariffs between the EU and the U.S. remain at a technical level, with no signs of meaningful progress.”

Trade Deal Brings Relief, But Risks Remain

Barclays' upward revision to its U.S. and eurozone forecasts suggests a more optimistic economic outlook in the wake of easing trade tensions between the world’s two largest economies.

However, risks remain high. Despite the temporary truce, tariffs remain elevated, and uncertainty surrounding global trade relations continues to weigh on confidence—especially in Europe.

Still, for investors and businesses, the reduced threat of a U.S. recession is a welcome development, offering a more stable foundation as the second half of the year approaches.

Sources: (Investing.com, Reuters)