What's on the Horizon for the Global Economy?

Our view in a nutshell

Japan

• Japan’s economy will likely slow in H2 2025, due mainly to the US tariffs, but then revert to a recovery path toward 2027.
• US President Trump signed the executive order on 4^th September to reduce the tariffs on Japan’s autos to 15%.
• PM Ishiba announced his intention to resign as the LDP’s president, leading to a presidential election on 4 October.
• We believe the BOJ will hike in January 2026; a hike in October 2025 is marginally less likely, given Ishiba’s resignation.

China

• Despite decent growth in H1 and the stock market rally, we see high risk of a demand slowdown, driven by multiple factors.
• Consumption demand could be weighed down by the new austerity measures and a payback effect from the trade-in program.
• The anti-involution campaign that aims to address overcapacity could reduce demand for raw materials and investment.
• The export growth slowdown could worsen due to US tariffs, payback from front-loading and the end of the de minimis loophole.

Rest of Asia

• Tariffs, policy uncertainty and weak global demand are likely to slow Asia’s export and capex growth sharply in H2 2025.
• Open economies (Thailand, Singapore, Taiwan, Korea) are most vulnerable, while India and the Philippines are more insulated.
• Disinflation should sustain, due to lower oil prices, weak demand, and a redirection of Chinese exports to the region.
• The soft growth-inflation backdrop calls for a frontloaded and deeper rate cutting cycle in the region, with fiscal support also on tap.
• Korea: Amid easing financial stability concerns, we expect the BOK to deliver two more 25bp cuts in October and February.
• India: Trump’s 50% tariffs are growth negative. Weak growth and underwhelming inflation should lead to 50bp of further rate cuts.
• Indonesia: Populist measures of the new government raise fiscal risks while current account deficits continue to widen.
• Australia: With better growth momentum and stronger inflation pressure we now forecast only one final rate cut, in February.
• New Zealand: With material spare capacity and a dovish central bank, we forecast 25bp rate cuts in October and November.

United States

• We expect two additional cuts this year in October and December.
• Less emphasis on inflation risks and a likely shift in Fed leadership in 2026 are likely to lead to 3 cuts in 2026.
• Data released since the June FOMC have shown a sharp deterioration in employment and less inflation pressure than feared.
• We expect the OBBBA to be modestly stimulative in the near term, given frontloaded incentives and backloaded spending cuts.
• The labor market is rapidly losing momentum, and risks remain skewed to the downside.

Canada

• The August CPI suggested tariff-related price pressures did not intensify, while core inflation also somewhat eased.
• The BoC is likely to ease in December, as downside risks to growth and labor markets from tariffs remain elevated.
• Slowing domestic demand, lower energy prices, and falling rents are likely to weigh on prices in the coming months.

Euro Area

• While fiscal policy should be growth-positive in the medium term, higher tariffs make the near-term view more challenging.
• We see HICP inflation of around 2.0% in H2 2025. Services inflation is sticky but moderating.
• We believe the ECB has finished its cutting cycle as we expect GDP growth to accelerate and inflation to be at target in H2 2025.
• The ECB began full roll-off of APP portfolio redemptions in July 2023 and PEPP portfolio redemptions in January 2025.

United Kingdom

• GDP growth was strong in Q1 and a resilient 0.3% q-o-q in Q2. However, underlying private domestic demand remains weak.
• Downside risks: higher yields, weak confidence and a weaker job market. Upside risks: strong wage growth, US trade deal.
• Headline inflation is rising again, partly due to base effects and energy, but we see it returning to target in 2026.
• We expect quarterly Bank Rate cuts until February 2026. Markets see a slower progression.

Scandinavia and Switzerland

• Switzerland: Inflation is near zero, but we expect it to pick up, preventing another policy rate cut from the SNB to a negative rate.
• Sweden: Economic activity remains weak but is improving. Inflation is likely to slow. We think the Riksbank’s cutting cycle is over.
• Norway: Norges Bank has cut its policy rate twice in 2025. Inflation remains high and we expect a slower pace of cuts going forward.

CEEMEA

• Türkiye: Under the new economic program, inflation continues to decrease despite some delays in meeting interim targets.
• Türkiye: Due to resilient growth and upside risks to inflation, the CBRT maintains its hawkish stance to anchor expectations.

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