Trump’s Policies Could Create “Inflationary Perfect Storm” Despite Recession Fears Receding

Despite diminishing fears of a U.S. recession in 2025, President Trump’s economic and immigration policies risk creating an “inflationary perfect storm,” according to a new economic forecast report published by GlobalData TS Lombard.

The 11th edition of the firm’s Global Economic Outlook Executive Briefing projects U.S. economic growth of 1.5% in 2025 with inflation hovering around 3%. However, analysts warn these forecasts face significant upside inflation risks due to the administration’s expanding tariff agenda.

The report indicates that average U.S. tariffs are likely to settle around 15%, substantially higher than the initially projected 10% baseline. This tariff increase, combined with aggressive immigration enforcement, could significantly tighten labor markets and push inflation beyond current market expectations.

“The President now has the $170bn in funding for new border and immigration controls,” notes the report. While the administration may not reach its ambitious target of deporting one million people annually, even half that number would create notable labor market pressures, especially considering the current context of self-deportations and stagnant immigration.

These immigration policies have sparked protests across the United States, as documented in the report’s accompanying imagery. The economic analysis raises questions about whether deportations might be scaled back as the September 2026 midterm elections approach, and whether new tariff agreements could potentially reduce inflationary pressures.

The report also addresses the potential for inflation relief through tax rebates, though it cautions that such measures could ultimately contribute to inflation rather than mitigate it.

Looking beyond U.S. borders, Trump’s policies might inadvertently stimulate growth in Europe as governments face pressure to increase spending, particularly on defense, in response to U.S. threats to reduce NATO involvement. While the recent EU-U.S. trade agreement has been widely criticized, the report characterizes it as “not so bad relative to the alternatives” that European economies might have faced.

For the United Kingdom, the outlook appears increasingly challenging. The report, published before the release of better-than-expected Q2 figures, notes that GDP contracted by 0.1% month-on-month in May while prices continued to rise. However, it acknowledges the Bank of England’s expectation of a “bumpy path” to inflation at 3.7% through the summer, with projections for a sharp decline later in the year.

Emerging markets face particular vulnerability under Trump’s economic policies. The report suggests an acceleration of U.S.-China economic decoupling and more stringent controls on triangulated Chinese imports will limit the benefits that broader emerging markets previously gained from U.S.-China trade fractures.

“Trump’s policies, with likely higher U.S. bond yields, are a risk for all emerging markets, but especially China, Mexico and South Korea,” the report warns.

The analysis comes at a critical time for global markets as they adjust to the economic implications of Trump’s return to the White House. With inflation concerns mounting and significant policy changes underway, investors and economic stakeholders worldwide are closely monitoring these developments for their potential impact on global trade patterns, supply chains, and inflationary pressures in the months ahead.