Global Macro Outlook: Second Quarter 2025

2025-04-02 05:30:00 ET

Summary

• US consumer sentiment weakened in response to rapid policy changes, especially trade-related, but the broader impact on consumption remains in question.
• The Fed is well-positioned to wait for more information on how economic crosscurrents play out, though we expect rate cuts to resume later this year.
• In Europe, growth should be mild, but the medium-term outlook has considerably improved amid fiscal reforms in Germany.
• Too-low inflation remains a challenge in China, where nominal GDP is historically low — likely due to a lack of underlying momentum.
• US policy framework will be a challenge, but we think the global economic starting point is robust enough to limit the downside risks in all but the most severe scenarios.

The Macro Picture

Uncertainty remains the dominant theme in the global economy and across financial markets. The early months of the Trump administration have brought dramatic, rapid policy changes at unpredictable intervals both inside and outside the United States. The changes, though, are not necessarily those that financial markets appear to have expected. Rather than an initial focus on tax cuts and deregulation, as was the case in the first Trump administration, Trump 2.0 has instead prioritized cutting government spending and imposing more severe tariffs than was the case eight years ago.

With US policies thus far focused on measures that are likely to slow growth rather than boost it, US financial markets have largely reversed the initial post-election surge. In contrast, European financial markets have surged, buoyed by more growth-friendly fiscal policy. Meanwhile, Chinese markets have stayed steady as authorities discussed measures designed to offset US tariffs and reiterated a stable growth target for 2025. With the US combining tariffs with government cuts and Europe and China using domestic policies to support growth, the case for US exceptionalism is obviously weaker today than it seemed at the start of the year, and financial markets have responded accordingly....

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