Weekly Insights

Global Outlook: Room for Optimism

We think the macro glass is half full. The US should grow near trend, China is likely to at least put a floor under growth, and rate cuts have started. Despite the risk of a tariff war, we expect the world economy to grow 3% next year, close to the pace set in 2024.

• The incoming Trump administration's agenda should drive financial markets for the next few months. We expect immediate action on deregulation and immigration. Tax cut extension and details on tariffs will likely take until at the least the end of Q2, if not longer. 
  
  
• The main economic impact of immigration-related actions should be through slowing new immigration, which will somewhat reduce trend growth. We expect deportation of undocumented immigrants to run at 400-500k a year, and not the “millions” mentioned in the campaign.
  
  
• China's stimulus efforts have been sizable but focused on putting a floor under the housing market and helping local governments, as opposed to helping consumption. We expect the economy to grow a below-consensus 4% next year, as a hit from tariffs offsets some of the boost from stimulus. 
  
  
• Central banks on both sides of the Atlantic will keep easing, but the Fed is likely to cut just 50bp in 2025, given a resilient US economy and some pressure on goods inflation from tariffs. The ECB should move much more quickly, bringing the depo rate to 2% by the middle of 2025.
  
  
• Despite the risk of a tariff war, a number of other downside risks have now faded. Post-election uncertainty has been resolved, oil prices have shrugged off the Middle East war for over a year, and jobless rates remain low in the West. We think the world grows at 3% in 2025 after expanding at 3.2% this year.