What's on the Horizon for the Global Economy?

Our view in a nutshell

Japan

• Japan’s economy will likely remain on a moderate recovery towards 2027, albeit with a slowdown due to US tariffs.
• Japan and the US agreed on tariffs, which are close to our existing assumption in terms of their impact on Japan’s GDP.
• The ruling coalition lost the majority in both houses. We focus on politics toward September and fiscal policy thereafter.
• We believe the BOJ’s next rate hike will come in January 2026, while a hike in October 2025 is also in sight as a risk.

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: Inflation pressures are gradually easing; we expect two more 25bp rate cuts, in November and February.
• New Zealand: With material spare capacity and a dovish central bank, we forecast 25bp rate cuts in November and February.

China

• Despite decent growth in H1 and the stock market rally, we see the 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 de minimis loophole.

United States

• We expect the FOMC will cut 25bp at the upcoming September meeting.
• We expect this to be followed by additional quarterly cuts in December and March.
• 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 moderately 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 July CPI report highlighted elevated core inflation. We expect a gradual moderation in the coming months.
• We expect the BoC to hold rates steady until price pressures have waned, and forecast a 25bp cut in December 2025.
• The unemployment rate is likely to remain elevated, while downside risks to growth due to tariffs have increased.

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. There are upside risks from a tariff response, but downside risks from China.
• 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 to a 3.5% terminal rate.

Elsewhere in Europe

• Switzerland: Inflation is near zero. We expect tariffs to weigh on the economy and a final policy rate cut to -0.25% in September.
• Sweden: Economic activity growth remains weak. However, above-target inflation should prevent further policy rate cuts.
• Norway: Norges Bank commenced its cutting cycle in June despite high inflation readings in 2025. We expect two more cuts this year.

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