US tariff increases have become more likely, especially on China, and possible changes in the US macro picture are leading to different interest rate expectations.

Such prospects mean the impending change in the US administration will be challenging for China and the rest of Asia-Pacific, an S&P Global Ratings report titled “Economic Outlook Asia-Pacific Q1 2025: US Trade Shift Blurs The Horizon” indicated.

“Rising risks are blurring the economic outlook for Asia-Pacific in the first quarter of 2025,” Louis Kuijs, S&P Global Ratings Asia-Pacific chief economist, said.

“While much of the region should be able to continue to grow solidly, central banks will probably remain cautious by not reducing their policy rates too fast.”

Stimulus supports growth

China’s stimulus measures should support growth, but S&P expects its economy to be hit by US trade tariffs.

S&P now projects a 4.1 percent gross domestic product (GDP) growth in 2025 and 3.8 percent in 2026, that’s 0.2 percentage points and 0.7 ppt lower than its September forecast.

Asia-Pacific growth will be impeded by slower global demand and US trade policy.

Lower interest rates and inflation should ease their drag on spending power.

And in emerging markets, robust domestic demand growth is buoying GDP growth.