Barclays has revised its U.S. economic outlook for 2025, now projecting a 0.5% growth, a significant shift from its earlier forecast of a 0.3% contraction. This adjustment is attributed to the recent easing of trade tensions between the United States and China, which have reduced economic uncertainty and improved global conditions.

The U.S. and China have been engaged in a protracted trade conflict characterized by escalating tariffs and retaliatory measures. In early 2025, the Trump administration imposed a 10% tariff on all Chinese imports, citing concerns over fentanyl trafficking. China responded with tariffs on U.S. goods and non-tariff barriers, including blacklisting American companies and restricting exports of critical minerals. These actions contributed to global economic uncertainty and disrupted supply chains.

In May 2025, the U.S. and China agreed to a 90-day tariff truce during trade talks in Switzerland. This temporary agreement reduced tariffs on both sides, with the U.S. lowering tariffs on Chinese imports from approximately 145% to 30%, and China reducing its tariffs on U.S. imports from 125% to 10%. This truce has been instrumental in alleviating economic uncertainty and fostering a more favorable environment for global trade.

Following the tariff truce, U.S. equity funds experienced their first weekly inflows in five weeks, with a net purchase of $12.86 billion in the week ending May 14, 2025. Investor sentiment was bolstered by the easing trade tensions and lower-than-expected consumer inflation data for April.

Additionally, Asian spot liquefied natural gas (LNG) prices rose slightly for the second consecutive week, reaching $11.75 per million British thermal units for July delivery into northeast Asia. This increase is attributed to improved industrial sentiment following the U.S.-China tariff truce.

Despite the easing of trade tensions, U.S. consumer sentiment has declined, reaching 50.8 in May 2025—the second-lowest level in the University of Michigan's nearly 75-year history of the survey. This decline is largely driven by concerns over trade policies and resulting inflation. Major retailers like Walmart have begun raising prices, anticipating further increases due to existing tariffs. Inflation expectations have surged, with short-term projections reaching 7.3%, the highest since 1981.

Barclays now projects a 0.5% growth for the U.S. economy in 2025, up from a previous forecast of a 0.3% contraction. The bank also anticipates a 1.6% growth in 2026, slightly higher than the earlier prediction of 1.5%. Additionally, Barclays has upgraded its euro area growth forecast to flat for the year, compared to an earlier prediction of a 0.2% contraction, though it still anticipates a mild technical recession in the euro zone during the latter half of 2025.

The easing of trade tensions and Barclays' revised forecasts suggest a more optimistic economic outlook, potentially leading to increased business investment and consumer spending. However, persistent inflation concerns and declining consumer sentiment indicate that challenges remain. The situation underscores the complex interplay between trade policies, economic growth, and consumer confidence.