United States Economic Forecast Q2 2025 – Deloitte

Economic Scenarios and Sustainable Development Goals (SDGs) Analysis

Baseline Scenario

The baseline forecast projects economic growth based on current assumptions, with an average tariff rate around 15% throughout the forecast period. Tariffs on imports from Canada and Mexico are expected to decline to approximately 3% by next year due to compliance with the United States-Mexico-Canada Agreement (USMCA). Tariffs on China, the European Union, and other countries are anticipated to remain at 50%, 20%, and 10%, respectively.

Key fiscal assumptions include the extension of provisions from the Tax Cuts and Jobs Act (TCJA) to prevent tax increases in 2026, with additional tax cuts included in the final budget bill. Despite expansionary fiscal policy, the deficit increase is modest compared to initial proposals.

Long-term interest rates are expected to remain elevated, with the 10-year Treasury yield near 4.5% through 2025, declining gradually to 4.1% by 2027 and stabilizing thereafter. Inflationary pressures from tariffs will temporarily raise the core PCE price deflator to 3.6% by late 2025, prompting a cautious Federal Reserve approach to rate cuts.

Economic impacts include slowed business investment and hiring, potentially increasing unemployment to 4.6% in 2026. Trade barriers reduce international trade, with real imports and exports falling by 7.1% and 1.8%, respectively. Real GDP growth is forecasted at 1.4% in 2025 and 1.5% in 2026, accelerating to a steady 1.8% by 2029.

SDG Implications

• SDG 8 (Decent Work and Economic Growth): Slower GDP growth and rising unemployment may challenge inclusive economic growth and employment opportunities.
• SDG 9 (Industry, Innovation, and Infrastructure): Reduced business investment could hinder industrial innovation and infrastructure development.
• SDG 17 (Partnerships for the Goals): Trade tensions and tariff barriers may weaken international economic partnerships.

Trade Tensions Ease (Upside Scenario)

This scenario assumes the finalization of additional trade agreements, reducing the average tariff rate to about 7.5% by the end of 2025. Compliance with USMCA improves rapidly, lowering tariffs on imports from Canada and Mexico ahead of an updated agreement expected in 2026. Tariffs on China and the European Union decrease to 30% and 5%, respectively.

Despite lower tariffs, economic growth slows in 2025 due to a moderation in consumer spending. However, reduced inflation enhances consumer purchasing power. The Federal Reserve adopts a dovish monetary policy, cutting rates by 25 basis points quarterly from Q3 2025 through Q4 2026. The final budget bill extends tax provisions with a smaller deficit impact, calming bond markets and lowering the 10-year Treasury yield to 4.25% by late 2024.

Lower tariffs and interest rates stimulate business investment, supported by deregulation and productivity gains from artificial intelligence advancements.

SDG Implications

• SDG 8 (Decent Work and Economic Growth): Enhanced economic growth and investment support job creation and sustainable economic development.
• SDG 9 (Industry, Innovation, and Infrastructure): Increased productivity and innovation through AI and deregulation promote resilient infrastructure and industrialization.
• SDG 12 (Responsible Consumption and Production): Lower inflation and improved trade conditions contribute to sustainable consumption patterns.
• SDG 17 (Partnerships for the Goals): Strengthened trade agreements foster international cooperation and economic partnerships.

Trade Deals Fall Apart (Downside Scenario)

In this scenario, tariffs rise significantly to an average of 25%, with China facing 75% tariffs and Canada, Mexico, and the European Union at 25%. Other countries face 10% tariffs. Bond markets react negatively, pushing the 10-year Treasury yield above 5% by Q4 2025, leading to austerity measures including spending cuts and higher taxes.

The US economy enters a recession in Q4 2025, with real GDP declining 1.7% in 2026. Consumer spending, government spending, business investment, imports, and exports all contract. The unemployment rate peaks at 6% in mid-2026 and remains elevated. Federal spending declines through 2029 due to fiscal caution, further suppressing growth.

The Federal Reserve delays rate cuts until late 2025, initially reducing rates modestly before more aggressive cuts in 2026. Rate increases resume slowly in 2027.

SDG Implications

• SDG 1 (No Poverty): Economic recession and rising unemployment may increase poverty levels.
• SDG 8 (Decent Work and Economic Growth): Economic contraction and job losses undermine sustained economic growth and employment.
• SDG 10 (Reduced Inequalities): Economic downturn may exacerbate social and economic inequalities.
• SDG 17 (Partnerships for the Goals): Breakdown of trade agreements weakens global economic cooperation.

Summary

1. Baseline Scenario: Moderate economic growth with persistent trade barriers and inflationary pressures, impacting employment and investment (SDGs 8, 9, 17).
2. Upside Scenario: Reduced tariffs and enhanced trade agreements stimulate growth, innovation, and international cooperation (SDGs 8, 9, 12, 17).
3. Downside Scenario: Increased tariffs and fiscal austerity lead to recession, higher unemployment, and weakened global partnerships (SDGs 1, 8, 10, 17).

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 8: Decent Work and Economic Growth
   • The article discusses economic growth forecasts, unemployment rates, business investment, and government spending, all of which relate to promoting sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all.
2. SDG 9: Industry, Innovation, and Infrastructure
   • Mentions of business investment, deregulation, and gains from artificial intelligence improving productivity growth relate to fostering innovation and building resilient infrastructure.
3. SDG 10: Reduced Inequalities
   • Trade policies, tariffs, and international trade relations impact economic inequalities between countries and within the economy.
4. SDG 17: Partnerships for the Goals
   • The article references trade agreements such as the United States-Mexico-Canada Agreement (USMCA) and the importance of international cooperation to reduce tariffs and promote trade.
5. SDG 12: Responsible Consumption and Production
   • Consumer spending and inflation dynamics discussed relate indirectly to sustainable consumption patterns.

2. Specific Targets Under Those SDGs

1. SDG 8 Targets
   • 8.1: Sustain per capita economic growth in accordance with national circumstances.
   • 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation.
   • 8.5: Achieve full and productive employment and decent work for all women and men.
2. SDG 9 Targets
   • 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product.
   • 9.5: Enhance scientific research, upgrade the technological capabilities of industrial sectors.
3. SDG 10 Targets
   • 10.1: Achieve and sustain income growth of the bottom 40% of the population at a rate higher than the national average.
   • 10.7: Facilitate orderly, safe, regular and responsible migration and mobility of people, including through implementation of planned and well-managed policies.
4. SDG 17 Targets
   • 17.10: Promote a universal, rules-based, open, non-discriminatory and equitable multilateral trading system under the World Trade Organization.
   • 17.11: Significantly increase the exports of developing countries.
5. SDG 12 Targets
   • 12.2: By 2030, achieve the sustainable management and efficient use of natural resources.

3. Indicators Mentioned or Implied to Measure Progress

1. Economic Growth and Employment Indicators
   • Real GDP growth rates (e.g., 1.4% in 2025, 1.5% in 2026, etc.)
   • Unemployment rate changes (e.g., rising to 4.6% in 2026 or 6% in 2026 in downside scenario)
   • Business investment levels and productivity growth
2. Trade and Tariff Indicators
   • Average tariff rates by country or region (e.g., 15% baseline, 7.5% upside, 25% downside)
   • Real imports and exports of goods and services (e.g., imports falling by 7.1%, exports falling by 1.8%)
3. Inflation and Monetary Policy Indicators
   • Core PCE price deflator (inflation rate reaching 3.6% by Q4 2025)
   • Federal funds rate and 10-year treasury yield (interest rates as monetary policy tools)
4. Fiscal Policy Indicators
   • Federal deficit and federal spending levels
   • Tax provisions and their extensions or expirations

4. Table of SDGs, Targets, and Indicators

Source: deloitte.com