These are the important thing takeaways from our Q2 2025 International Financial Outlook, initially printed on thirtieth June, 2025. Some forecasts contained inside could have been modified since publication. Entry to the entire report, together with in depth forecasts, close to to long-term evaluation and interactive information assets, is offered as a part of our subscription services.
- International GDP progress is about to sluggish over the subsequent two years, with Trump’s insurance policies dampening US exercise and China’s fiscal enhance waning. India will stay a robust performer, with progress averaging 7% via 2025. As inflation continues to ease, most central banks will press forward with price cuts — although a tariff-driven pickup in US core items inflation will probably hold the Ate up maintain for the remainder of the 12 months.
- Our baseline forecast is for tariffs to stay at their present ranges of round 10% on most international locations and 40% on China, inflicting the US efficient tariff price to rise shut to fifteen%. (See Chart 1.) So long as retaliation by different international locations is proscribed, we anticipate this to solely knock about 0.3% off international GDP by end-2026. So international GDP progress will sluggish to a contact beneath 3% within the subsequent two years. (See Chart 2.)
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Chart 1: US Efficient Tariff Fee (%) |
Chart 2: International GDP (% y/y) |
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- Whereas some economies skilled an preliminary enhance from tariff front-running in Q1, this has already unwound. And we anticipate tariffs to scale back international actual items commerce by about 1% over the subsequent two years. (See Chart 3.) Whereas China’s direct exports to the US will fall sharply, its skill to reroute most of its exports will reduce the general hit to international commerce.
- Though tariffs seem to have had a negligible impression on US exercise and worth pressures up to now, we anticipate tariffs and immigration curbs to weigh on US GDP progress over the subsequent few quarters. In the meantime, looser fiscal coverage will present a prop to progress in Germany, however not sufficient to offer a significant enhance to progress on the euro-zone stage. Nonetheless, the comparatively restricted impression of tariffs in most non-US DMs (other than Canada) signifies that the US economic system’s outperformance will come to an finish. (See Chart 4.)
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Chart 3: International Actual Items Commerce (% y/y) |
Chart 4: US & Different DM GDP (% q/q annualised) |
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- In China, though official GDP figures present progress across the 5% goal, exercise as measured by our China Exercise Proxy (CAP) has slowed sharply. (See Chart 5.) We predict progress will fall additional to three.5% this 12 months. In spite of everything, tariffs are simply one of many headwinds dealing with exporters. And we proceed to doubt that fiscal insurance policies will do a lot to raise home demand.
- Amongst different EMs, we’re significantly optimistic about India’s progress prospects. The economic system acquired off to a robust begin in Q1, and whereas India faces some headwinds from tighter fiscal coverage, it’s comparatively sheltered from US tariffs. Our progress forecasts additionally lie above the consensus in Asia and MENA, however beneath the consensus in Russia and Latin America.
- Headline inflation is near targets in lots of DMs. And whereas core inflation stays elevated in some circumstances, particularly within the UK, an extra cooling in labour markets ought to weigh on worth pressures earlier than lengthy. The US is the exception, the place we anticipate tariffs to trigger core PCE inflation to rise to a bit of over 3% later this 12 months. (See Chart 6.)
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Chart 5: CE China Exercise Proxy & Official GDP (% y/y) |
Chart 6: Headline CPI Inflation (%) |
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- A key upside threat to inflation is that if the Israel-Iran battle had been to accentuate once more, inflicting oil costs to rise to and stay at $100 or greater. In that case, DM headline inflation could be about 1%-pt greater this 12 months. (See Chart 7.) However with the US-brokered ceasefire holding up for now, this threat has receded considerably.
- So with inflation extra contained, most central banks will press on with price cuts within the coming quarters. Whereas we have now in all probability handed the height of the worldwide coverage loosening cycle, we predict {that a} majority of central banks will nonetheless be slicing charges within the second half of this 12 months. (See Chart 8.) However we nonetheless anticipate the Fed to chorus from price cuts till early 2026.
US – We anticipate tariffs to have solely a modest impression on financial exercise, with GDP progress slowing to 1.5% annualised and core PCE inflation rebounding to a bit of over 3% later this 12 months. However the lingering risk of a extra persistent pick-up in worth pressures will stop the Fed from slicing rates of interest till subsequent 12 months.
Euro-zone – Regardless of a lift from looser fiscal coverage in Germany subsequent 12 months, we anticipate total euro-zone GDP progress to stay sluggish. Inflation ought to keep round goal, and the ECB is close to the tip of its easing cycle.
Japan – With inflation on observe to overshoot the BoJ’s forecast, we anticipate the Financial institution to renew its tightening cycle earlier than year-end regardless of GDP progress softening, and finally hike charges to 1.5% in 2027.
UK – We anticipate inflation to fall to 2% subsequent 12 months because the weakening within the labour market feeds via to decrease wage progress. Because of this, we now suppose the BoE will minimize rates of interest all the best way to three%.
Canada – We anticipate US tariffs and commerce coverage uncertainty to weigh on GDP progress.
Australia & New Zealand – Easing worth pressures imply the RBA and RBNZ will minimize by greater than most anticipate.
China – The mixture of much less fiscal assist, US tariffs, a fading prop from foreign money depreciation and property sector weak spot will trigger GDP progress to sluggish from practically 5% final 12 months to three.5% in 2025 and three% in 2026.
India – With the economic system poised to develop at a 7% price within the subsequent two years, India might be a worldwide outperformer.
Other Asia – Beneath-trend GDP progress and below-target inflation will enable central banks to chop charges additional.
Emerging Europe – GDP progress will decide up throughout a lot of the area, however sluggish in Russia and Turkey.
Latin America – Deteriorating phrases of commerce and tighter fiscal coverage will weigh on GDP progress throughout the area, whereas Mexico will face an extra headwind from weaker US demand for its exports.
Middle East & North Africa – Decrease oil costs and tighter fiscal insurance policies will weigh on GDP progress throughout the area. However the Iran-Israel ceasefire has eliminated an instantaneous draw back threat to the Gulf economies’ outlook.
Sub-Saharan Africa – GDP progress ought to decide up barely throughout the area, however debt considerations will linger.
Commodities – We anticipate most commodity costs, significantly oil, to fall over the subsequent two years as provide rises. However tariffs complicate the outlook for metals markets and pose upside dangers to costs within the close to time period.
