Capital Economics Forecasts Modest Global GDP Growth in 2025
Capital Economics has published its global economic forecast, predicting reasonable global GDP growth and a continued normalization of monetary policy by 2025. The firm anticipates that the impact of tariffs on the global economy will generally be less severe than expected, with more significant effects likely emerging not in 2025, but in 2026. Geopolitical issues are expected to dominate headlines, although their economic consequences are projected to appear over the next few years.
In the U.S., forecasts indicate that the incoming Trump administration's policies would limit GDP growth to around 1.5% annually, with inflation rising temporarily to approximately 3%. Capital Economics expects the Federal Reserve to cut interest rates two more times in the first half of 2025, setting the federal funds target range between 3.75% and 4.00%.
For the Eurozone, the combination of slow growth and inflation rates below target is expected to lead the European Central Bank (ECB) to consider more interest rate cuts next year than most currently anticipate. Despite a gloomy outlook due to domestic challenges and issues with major trading partners, the United Kingdom is projected to experience a stronger economy than many expect, benefiting from low inflation and interest rates.
China is prepared for additional policy easing to support economic activity in the coming months; however, a still-anticipated slowdown next year is attributed to a tougher external environment and ongoing declines in property prices and construction. Following a strong performance, the Indian economy appears to be transitioning into a softer phase, and the Reserve Bank of India (RBI) is likely to adopt a less hawkish stance. Weak GDP growth and low inflation in other Asian regions are expected to persist, which may lead to further interest rate cuts.
The report also forecasts a decline in prices for most energy and industrial metals in 2025 due to structural demand constraints and increased supply, while noting that the risks associated with this outlook are generally more balanced than commonly assumed.