Blog
11 Apr 2025

No Liberation from Uncertainty in our IFRS 9 and CECL scenarios

Davina Heer
Davina Heer
Senior Economist, Scenarios and Macro Modelling

The implementation of the US “Liberation Day” tariff hikes will have significant impacts on individual sectors and firms, even in their latest, scaled back, coverage. Although our initial assessment suggests a global recession will likely be avoided, assessing the implications on downside risks around the baseline forecast has become increasingly important.

Following President Trump’s announcement, there was a sharp deterioration in sentiment, with our latest global risk survey highlighting that businesses have shifted their main concern from broader geopolitical tensions to trade-related uncertainty. This uncertainty is likely to persist, as governments enter negotiations on individual reciprocal tariffs. Questions also remain around how the US might respond to retaliation and whether talks may drag on over contentious issues such as non-tariff barriers.

Chart 1 shows the surge in uncertainty in the lead up to the US “Liberation Day”. With trade-related uncertainty set to remain elevated, its impact on global growth prospects will be harmful, particularly for business investment.

Despite escalating trade tensions, broader economic uncertainty remains relatively contained by historical standards across two key metrics we track. The first is based on our Global Business Sentiment Index, which captures the average year-ahead world GDP expectations from over 150 businesses completing our survey each month. We calculate the interquartile range of these responses to gauge how uncertain businesses are about future growth. As shown in Chart 2, intensifying trade tensions have driven a renewed uptick in uncertainty in February and March. Although levels remain within historical norms for now, recent developments suggest a further rise is likely in the months ahead.

Our second metric draws on Consensus Economics’ monthly reports, which provides a measure for the dispersion of respondents’ year-ahead GDP growth forecasts. As shown in Chart 3, the forecast dispersion for implied global GDP growth ticked up in March but remained well below its long-term average. Recent US policy announcements are likely to trigger a renewed widening in forecast dispersion as economists diverge on their assumptions about the global growth outlook following the breakdown of a predictable trading system. We now expect global demand to be much weaker than our March baseline, by around 0.3ppts this year and 0.4ppts in 2026, with risk around the base case skewed to the downside.

These high-frequency measures of uncertainty correlate well with our own forecast errors. Chart 4 plots the average one-year-ahead forecast error for GDP growth across key economies, highlighting that forecast errors typically increase during periods of elevated forecast dispersion (e.g., during the Global Financial Crisis and the Covid-19 pandemic), resulting in higher standard deviations. This pattern reinforces the idea that shifts in the distribution of expectations are informative at times when economic conditions are shifting markedly.

Combined, these measures therefore provide useful benchmarks to assess the wider ramifications from trade disruption, volatility in prices, and a new policy mix over the coming years. Should economic uncertainty exceed historical thresholds again we would be able to reflect that in our IFRS 9 and CECL scenarios by incorporating a heightened near-term dispersion in the scenarios. This is similar to the approach taken during the Covid-19 pandemic when we incorporated an overlay into our forecast-error distributions to capture the extreme macroeconomic uncertainty. As a result, our methodology remains well-suited during times of volatility, which allows us to help clients appropriately reflect risks in their expected credit loss (ECL) calculations.

Click here if you want to learn more about our IFRS 9 service and here for our CECL service.

Upcoming Webinars

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As we are looking ahead to continued travel growth, the composition of travel demand is evolving. City travel has surpassed pre-pandemic levels and is converging on longer-run trend growth rates. However, there are some significant shifts in activity and preferences within the total while uncertain tariff policies are also weighing on city tourism. In this webinar we assess our latest global city travel forecast update, how our city tourism rankings have changed, the regional opportunities for tourism growth and the impact of the latest US tariff policies.

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Economic uncertainty leading to a steep drop in US industry

The US saw the largest forecast downgrade in our most recent industrial update. Policy uncertainty and financial market volatility are expected to weigh heavily on business investment, particularly in equipment and structures. In addition, the tariffs are expected to lead to a sharp increase in goods prices and import costs for US manufacturers. In the Webinar, Matthew Martin and Nico Palesch discuss the latest US macroeconomic forecast and the impact on US industry, tech, and construction.

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Mapping China’s tariff pain to relative gains for other emerging economies.

Trade wars are costly for everyone, but there are clear relative losers and winners. Tariffs will cripple US-China trade, and we expect China's goods trade surplus to shrink but only to a still substantial 3.2% of GDP this year and remain significant in the medium term owing to trade diversification, shifts up the export value chain, and the reduced import intensity of Chinese demand. Ironically, other than China, the relative winners list includes the very countries Trump targeted most heavily in his April 2 tariff regime: Vietnam, Cambodia, Malaysia, Pakistan, and the Philippines

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