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    RESEARCH  |  3 POINT PERSPECTIVE  |  MACRO SHIFTS

    Q2 2025 Global Outlook: At a crossroads

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    Contributors: Ajay Rajadhyaksha & Amrut Nashikkar
    27 Mar 2025

    Global growth looks set to slow as tariffs rise. If policy uncertainty continues and trade wars worsen, a sharp slowdown may become a realistic risk across major economies, according to our Research analysts.

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    CHAPTERS

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    1. Policy uncertainty is extremely elevated

    The US administration has hit the ground running with a slew of executive orders, with reforms related to world trade, immigration and global geopolitics, which have caused increased levels of uncertainty and volatility as markets digest the raft of policy changes.

    Increased uncertainty comes at a cost to global growth, according to our Research analysts. In the US, consumer confidence has dropped, personal spending has been weak, and first-quarter GDP forecasts have fallen sharply. Investors cannot count on large new fiscal stimulus, either: the current US House of Representatives budget resolution implies mild fiscal tightening, and Congress narrowly avoided a shutdown in mid-March.

    2. Growth will likely weaken – but a recession is not the base case

    Our Research analysts think households in the US will continue to see a tailwind of wealth effects, and the jobless rate remains quite low. However, the consumer could decisively pull back in the face of government job cuts, a global trade war, and a sustained equity sell-off. A further slowdown this year in the US would no longer be unthinkable if these happened.

    In Europe, our Research analysts see positives from German stimulus and the EU’s plans for aggressive defence spending, but neither will really kick in until 2026. For now, the continent faces very sluggish activity; a manufacturing sector facing stiff competition from China; and, most importantly, US tariffs. China itself is still struggling, domestic demand remains weak, and the real estate sector is yet to stabilise.

    Our analysts’ new global growth forecast of 2.9% for this year is a marked slowdown from 2024's 3.3% forecast. But the pace could drop further if global trade wars accelerate.

    3. For the first time in years, bonds are preferred to stocks

    Our Research analysts have been overweight global equities over fixed income for many quarters – even as valuations looked increasingly stretched. But now, they find themselves worried about risk assets.

    The US equity pullback in the first quarter can be put down to investors’ downgrading the growth outlook, but that de-rating could go further. And while European equities have had a good start to the year, they retain strong links to US stocks. Bonds do not look compelling, either, given that issuance needs to keep rising and tariffs will inevitably push price levels higher, if only for a year.

    From an asset allocation standpoint, our analysts recommend being overweight global fixed income to global equities, but without much enthusiasm. And for now, cash allocations should be higher as investors await more clarity on policy.

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    About the experts

    Ajay Rajadhyaksha

    Global Chairman of Research

    Ajay Rajadhyaksha is Global Chairman of Research at Barclays, based in New York. He drives the global macro research and strategy effort, including economics, rates, FX, commodities, emerging markets, and asset allocation. Since joining Barclays in 2005, Ajay has held various positions, including Head of Macro Research, Co-Head of FICC Research and, before that, Head of US Fixed Income Research and US and European Securitised Research.

    Amrut Nashikkar

    Managing Director, Fixed Income Strategy

    Amrut Nashikkar is a Managing Director in the Fixed Income Strategy team at Barclays based in New York, covering interest rate derivatives with a focus on interest rate volatility and the Libor transition. Amrut joined Barclays in 2008 from Lehman Brothers, where he was an interest rate strategist. Prior to that, he taught at New York University, where he graduated with a PhD in finance. He also holds a management degree from the Indian Institute of Management, Ahmedabad, and an undergraduate degree in engineering from the Indian Institute of Technology, Kharagpur.

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