U.S. No Longer Heading Toward Recession This Year, Barclays Says

A new trade agreement between the U.S. and China has prompted Barclays to revise its economic outlook, now predicting that the United States will avoid a recession in 2025.

In a note released late Thursday, the bank said the de-escalation in trade tensions has reduced uncertainty and improved the overall economic backdrop.

Barclays now expects U.S. GDP to grow 0.5% this year and 1.6% in 2026, up from its previous forecasts of a 0.3% contraction in 2025 and 1.5% growth next year.

“The trade deal has created breathing room,” Barclays noted, pointing to the easing of tit-for-tat tariffs and a more constructive economic environment.

The agreement saw both countries roll back sharply elevated duties imposed earlier in the year. President Trump had slapped combined tariffs of at least 145% on Chinese imports, citing national security and fentanyl-related concerns. In retaliation, Beijing levied tariffs of up to 125% on U.S. goods. Under the new deal, the U.S. has reduced its duties to a consolidated 30%, which includes a baseline 10% tariff and a 20% penalty tied to China's alleged role in the fentanyl trade. China has also lowered its tariffs to 10%.

Despite the rollback, current tariff levels remain significantly higher than at the start of Trump’s second term, reaching levels not seen since the 1930s.

Barclays also upgraded its outlook for the euro area. The bank now expects zero growth in the eurozone this year, a notable improvement from its earlier projection of a 0.2% contraction. However, it still sees a mild technical recession in the region during the second half of 2025, although the contraction is expected to be less severe than previously feared.

“Uncertainty remains high, and negotiations on reciprocal tariffs between the U.S. and the EU are still stuck at a technical stage with no meaningful progress,” the bank cautioned.