Global Macro Outlook: First Quarter 2025

2025-01-08 07:35:00 ET

Summary

• The US seems well placed to grow more quickly than other developed economies for the time being, and that will shape the market outlook.
• As the US economy outperforms others, the Fed will likely be slower in lowering rates, which should keep US rates higher across the curve.
• Our outlook for the euro area was already subdued since the European economy has slowed significantly in recent months, and the situation now looks even more precarious.
• China growth continues to suffer, and while both monetary and fiscal easing are in train, more will be needed in our view.
• Our outlook is generally constructive, and if we’re right that the coming US divergence is one of magnitude rather than direction, we think it poses opportunities rather than risks for investors.

The Macro Picture

The resolution of the US election has provided some clarity as to the likely path of economic policy. A trade war is all but certain, with tariffs and other trade barriers likely to dominate the narrative in the next few months. While there are still questions around the timing, targets, magnitude and duration of the coming policy changes, the direction of travel seems clear enough.

From an economic perspective, less free trade will reduce growth everywhere, but we believe the impacts will be larger outside the United States. This could accentuate a divergence that is already underway: we expect the US to outperform the global economy in the coming quarters. To be clear, that divergence is not directional. We expect all major economies to continue to expand. But the US seems well-placed to grow more quickly than other developed economies for the time being, and that will shape the market outlook....

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