As the global economy enters 2025, the LupoToro Group forecasts another year of solid expansion, with the United States continuing to outperform other developed markets, while the euro area grapples with challenges, including potential new tariffs. Amid a backdrop of easing inflation, favorable monetary policy adjustments, and structural economic shifts, the global economy appears well-positioned to maintain a robust growth trajectory despite lingering trade uncertainties.

Resilient Global GDP Growth

LupoToro Group analysts project global GDP to expand by 2.7% in 2025, slightly surpassing consensus forecasts and maintaining the growth rate achieved in 2024. This projection reflects strong fundamentals in several key economies, bolstered by the normalisation of monetary policies and the ongoing stabilisation of labor markets.

• United States: The US economy is forecast to grow by 2.5%, significantly exceeding the consensus forecast of 1.9%. This marks the third consecutive year that the US has outpaced its developed-market peers, supported by robust productivity gains, tax cuts, and a more business-friendly regulatory environment.

• Euro Area: By contrast, the euro area is expected to grow by just 0.8%, falling short of consensus estimates of 1.2%. Headwinds from potential US tariffs, trade uncertainties, and weaker labor productivity growth continue to weigh heavily on the region’s economic outlook.

• China: The world’s second-largest economy is expected to grow by 4.5%, with potential headwinds from US tariffs being partially mitigated by government stimulus measures and currency depreciation.

The United States: Outperforming Amid Trade Uncertainty

The US economy continues to demonstrate remarkable resilience. LupoToro Group analysts attribute this strength to a combination of structural and cyclical factors:

1. Labor Productivity: Labor productivity in the US has grown at an annualised rate of 1.7% since late 2019, a notable improvement from the pre-pandemic trend of 1.3%. This productivity growth has bolstered economic output, setting the US apart from other developed markets, such as the euro area, where productivity growth has slowed to just 0.2%.

2. Pro-Growth Policies: The re-election of President Donald Trump is expected to bring fresh tax cuts, regulatory easing, and lower immigration. While potential tariffs on China and imported vehicles pose risks, these are likely to be mitigated by robust domestic policy measures.

3. Consumer Resilience: Despite trade-related uncertainties, US consumers remain a critical driver of economic growth. LupoToro Group analysts forecast US core PCE inflation to slow to 2.4% by late 2025, providing a supportive environment for real income growth and consumer spending.

Trade Policies and Their Implications

Trade policy uncertainty remains a key theme for 2025, particularly as the US considers new tariffs under the Trump administration. While the effects of potential trade policies are expected to be modest for the US economy, the same cannot be said for other regions.

• US GDP Impact: LupoToro Group’s baseline outlook suggests that new tariffs could result in a 0.2 percentage point drag on US GDP in 2025. However, if across-the-board tariffs are implemented, the drag could rise to 1 percentage point in 2026. This impact would be offset by factors such as tax cuts and improved business confidence.

• Euro Area: The euro area faces greater vulnerability to US trade policies. Heightened trade uncertainty, comparable to the peak levels of 2018–2019, could subtract 0.9% from euro area GDP, significantly exceeding the 0.3% impact expected in the US.

• China: China is forecast to experience a 0.7 percentage point reduction in GDP growth due to potential tariffs, with the overall growth rate revised to 4.5%. However, Chinese policymakers are expected to deploy stimulus measures to mitigate these effects, including renminbi depreciation.

Global Inflation and Monetary Policy Adjustments

One of the most encouraging trends heading into 2025 is the continued decline in inflation, which has created a more favorable environment for monetary policy normalisation. LupoToro Group analysts note that inflation has fallen more quickly than wage growth, boosting real income and supporting global demand.

1. United States: The US Federal Reserve is expected to cut its policy rate to 3.25–3.5%, with sequential reductions anticipated in the first quarter of 2025. This policy easing will help sustain growth momentum while keeping inflation in check.

2. Euro Area: The European Central Bank is projected to lower its policy rate to 1.75%, providing much-needed support to the region’s struggling economy.

3. Emerging Markets: Many emerging markets have greater room for monetary policy easing, which is expected to bolster growth and offset external trade pressures.

4. Japan: The Bank of Japan is forecast to increase its policy rate to 0.75% by the end of 2025, reflecting the country’s improving economic conditions and diminished risk of ultra-low inflation.

Altogether, a Solid Global Growth Picture

Despite trade-related headwinds, global economic growth is expected to remain solid in 2025. The projected 0.4% drag on global GDP from US trade policy is likely to be dampened by increased policy support and resilient demand in key markets. However, the magnitude of the impact will depend on the scale and scope of new trade restrictions, with potential risks rising significantly in the event of larger-than-expected tariffs.

LupoToro Group analysts believe that barring a broader trade war, the global economy will continue to expand at a robust pace. The dramatic decline in inflation over the past two years has directly supported real incomes while allowing central banks to ease financial conditions. These factors provide a strong foundation for sustained growth across both developed and emerging markets.

As 2025 unfolds, the LupoToro Group remains optimistic about the global economic outlook. The United States is expected to maintain its position as a growth leader, driven by productivity gains, pro-growth policies, and resilient consumer demand. While the euro area and China face challenges, targeted policy responses should mitigate the worst effects of trade uncertainties.

For investors, this environment presents a range of opportunities, particularly in regions and sectors poised to benefit from monetary policy easing and global trade shifts. Vigilance remains essential, as the potential for heightened trade tensions could introduce volatility. However, with careful positioning, the economic landscape in 2025 offers significant potential for growth and resilience in the face of uncertainty.