Global growth slows while European credit markets show resilience: A 2025 outlook

Introduction As global trade tensions escalate and hopes for a swift recovery fade, the world economy faces a pivotal moment in 2025—characterized by a general slowdown in growth, yet tempered by relative stability in certain financial segments, especially the European private credit markets. While fears mount over the economic impact of renewed U.S. tariffs, some institutions remain cautiously optimistic about sector-specific resilience.

1. Global growth slows, but not dramatically: The OECD and other major global institutions forecast slower growth for 2025. The OECD recently downgraded its global GDP growth outlook to 2.9%, from an earlier estimate of 3.1%, citing mounting protectionist pressures, particularly U.S.-led tariffs disrupting trade and global supply chains.

The U.S., under President Trump, has reignited tariff threats against key trading partners, especially the European Union. Though some duties remain suspended, the persistent threat of reactivation continues to weigh on market confidence.

2. Europe faces pressure, but time may be on its side: Europe remains at the center of U.S. trade tensions, facing delayed tariffs targeting vital sectors like automotive and steel. However, recent legal rulings—particularly from the International Trade Court—indicate that enforcing such tariffs may be slow and legally challenging. UBS analysts describe this as a “de-risking factor” that could soften immediate economic shocks.

3. European credit markets: Strength amid headwinds: Despite the turbulent backdrop, UBS analysts report that European private credit markets displayed notable resilience in H1 2025. Contributing factors include:

• Strong corporate balance sheets.
• Low default rates.
• Ample institutional liquidity.
• Supportive technical conditions limiting volatility.

UBS expects credit spreads to remain within a contained range barring major geopolitical or economic disruptions.

4. Sectoral sensitivity to tariffs: Who’s at risk? The impact of tariffs is uneven across sectors. Investment-grade sectors like financials and utilities show greater shock absorption, whereas high-yield sectors such as energy and natural resources remain more exposed to volatility.

This sectoral divergence underscores the importance of strategic portfolio positioning, favoring assets with strong credit fundamentals.

5. Investment recommendations: Selective opportunity in credit: UBS recommends long exposure to the iTraxx Europe Main Index—a benchmark for European credit default swaps—versus select investment-grade credit instruments. Volatility is expected to rise in July when the temporary suspension of Trump’s tariffs is set to expire.

Conclusion: While 2025 may fall short of global growth expectations, it still presents selective opportunities for investors—especially in European credit markets that continue to demonstrate a delicate balance amid global trade disruptions. Financial resilience, careful sector monitoring, and anticipation of political developments will be key to navigating risk and unlocking value.

(This article was written by the author with assistance from language generation tools to support structure and clarity. All insights and opinions are entirely the author’s own.)