Tariffs will be only a modest drag on GDP growth, with imports and exports both falling by roughly 5% from mid-2025 onwards. (See Chart 9.) Admittedly, under some circumstances tariffs might even be a net positive for the real economy. But with the economy already operating at close to full capacity, there is only limited scope to boost domestic goods production, particularly in the short-term.

• In an attempt to ease tensions, other countries might also refrain from retaliating with full matching countervailing tariffs. Once we factor in the impact of the dollar’s likely appreciation too, however, we suspect the impact on exports and imports will be very similar.
• Rising prices, in part due to tariffs, and immigration curbs will together weigh on real incomes and, consequently, consumption growth too, particularly with little scope to drive the saving rate even lower. (See Chart 10.) Knowing that tariffs are coming, households may try to front run them, boosting first-quarter consumption. The associated surge in imports would be a negative for GDP, however, meaning there would be no impact on the latter.       

• There weren’t any obvious signs that pre-election uncertainty was weighing on business investment, but the post-election surge in small business confidence suggests that we could see a pick-up in the first half of next year. (See Chart 11.) The AI boom should also translate into stronger investment growth in IT hardware, software and R&D. (See Chart 12.) With borrowing costs now likely to remain a little higher than we previously anticipated, however, we expect business investment growth to be solid rather than spectacular.

• A more muted decline in mortgage rates means that we are less optimistic about the scope for a rally in existing home sales too. (See Chart 13.) The ongoing lack of supply of existing homes to buy will continue to boost new home sales, supporting single-family home construction. Unfortunately, a drop off in multifamily construction means that we don’t expect any meaningful recovery in residential investment until 2026.
• The post-Inflation Reduction and CHIPS Acts boom in the construction of new hi-tech manufacturing plants appears to have run out of steam. (See Chart 14.) With the other components of non-residential construction spending broadly flat, we expect structures investment to drop back a little in 2025.

• The Trump administration will seek to boost domestic oil & gas production via deregulation. But opening up federal lands to more drilling will have a modest impact, since it accounts for only a minor share of output. With technological advances in horizontal drilling techniques meaning that oil production has been increasing without any associated increase in drilling, we don’t anticipate any big surge in mining structures investment. (See Chart 15.) 
• Overall, we are forecasting that business investment growth will be 3.3% in 2025 and 3.8% in 2026, with intellectual property and equipment investment growing at around 4% in both years, while non-residential structures investment is expected to fall by 0.8% next year before rebounding by 1.2% in 2026. (See Chart 16.)