World Economy to Continue Rebalancing in 2025

The global economic outlook for 2024 has been stronger than expected, with a real GDP growth estimate of 2.6%, indicating a move towards equilibrium post-pandemic. However, the potential imposition of broad tariffs by the incoming US administration could disrupt this trajectory, leading to slower growth and sustained higher inflation. The US economy remains anchored by consumer behavior, with a strong labor market expected to support income growth above inflation, although a gradual slowdown in consumption is anticipated in 2025.

Inflation is expected to normalize towards 2.5%, with the Federal Reserve likely reducing rates steadily, potentially reaching close to 3%. However, new tariffs could delay this inflation target. In Europe, growth is sluggish, with weak consumer demand and a manufacturing recession, making the region heavily reliant on external trade. US-imposed tariffs could exacerbate Europe's growth challenges, particularly affecting key exporting sectors.

China faces its lowest nominal GDP growth in a decade, projected at 4.5% for 2025. With limited consumer spending due to a lack of a social safety net, the public sector is expected to drive growth. Trade tensions with the US pose additional risks to China's economic stability. Political uncertainties in 2024 have hindered business investment, but with these largely resolved, capital investment is expected to accelerate, supporting growth.

Fiscal policy continues to bolster the global economy, with deficit spending likely to keep Treasury yields elevated. Despite the wide range of potential economic outcomes, the global economy's resilience is anticipated to withstand forthcoming challenges.