The latest data suggest that the world economy has made a relatively weak start to 2025. Activity in China has been soft so far this year amid a pullback in fiscal spending, while a surge in US imports due to tariff front-running appears to have caused US GDP to contract in Q1. Weak consumer sentiment and the likelihood of further tariffs will weigh on DM growth this year, especially in the US. And while China will benefit from renewed fiscal support in the near term, various headwinds mean that growth will slow again before long. Altogether, this suggests that global GDP will grow at a below trend pace in 2025. Weaker activity will bear down on underlying inflation pressures and allow most central banks to continue cutting interest rates. However, Trump’s policies will prevent the Fed from cutting at all.
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