Global GDP Themes and Forecasts

A global economic expansion appears to continue, but there is weakness beneath the worldwide headline growth figures. For a few euro zone economies, investors project growth rates of just 0.50% for 2025, which doesn’t leave much room before any potential contraction.[1] We still believe inflation will fall from current levels, though the path could be volatile month to month. Globally, the outlook for political stability is the most uncertain it has been in years—across developed and emerging markets.

USA & CANADA

TARIFF MAGNITUDE AND TIMING COMPLICATE INFLATION OUTLOOK

• January inflation data was higher than expected, even accounting for residual seasonality. Inflation has been slow to decline during the past 6 to 18 months.
• Earnings estimates for 2025 are near their highs. The implied year-over-year growth rate is 10.4%, which will likely prove too optimistic, in our view.[2]
• Weak payrolls could force Fed rate cuts even with inflation slightly above target.
• The volatility surrounding the timing and magnitude of US tariffs against Canada have led to whipsaw reactions. Adding to the uncertainty is the leadership change in Canada. With approximately 75% of Canadian exports going to the US, the longer the duration of potential tariffs, the more likely it is that Canada will fall into a recession. Even should a negotiated settlement occur, the overall heightened level of uncertainty and impact on business investment will remain in place for some time. The situation remains fluid.
    

LATIN AMERICA

INCREASINGLY INDIOSYNCRATIC MACRO STORIES 

• Countries in the region are becoming increasingly idiosyncratic, defined by domestic political shifts and relationships with the US—especially on trade and migration policies.
• Argentina enters 2025 in a stronger position than that of 2024. Inflation has slowed significantly, the fiscal position has improved dramatically, and a growth recovery appears underway. The close relationship between the Milei administration and the US is another tailwind.
• We do not expect significant tariffs on Mexico to be sustained. Though uncertainty during the negotiation process, which could extend for a while, acts as a headwind for Mexican assets.
• Brazilian assets have largely recovered following a crisis of confidence in December, aided by news that the government met the fiscal target in 2024 as well as credible and aggressive action from the central bank in the form of rate hikes and currency intervention.

UNITED KINGDOM

FLUX IN GLOBAL TRADE COULD PRESENT OPPORTUNITIES 

• Brexit (and concurrent immigration policy changes) caused serial and sustained disruption to the UK economy. In addition to the estimable costs of tariffs due to leaving the European Union (EU), trade regime uncertainty and political instability have created greater challenges.
• The Labor Party is looking to rebuild trading relationships with the EU and the US.
• We foresee potential upside surprises in UK trade—as it operates from a low base in its trade relations with the US and EU. Flux in the global system could conceivably benefit the UK, in our view.
  
  

EURO AREA

BROADER EUROPEAN RESPONSE IS UNDERWAY

• The European Central Bank is likely to enter a fine-tuning policy environment as disinflation continues and data points to inflation nearing the bank’s 2.0% target.[3]
• Following the German elections, a coalition will be formed, allowing for a more growth-friendly fiscal and administrative mix, with both European and domestic implications.
• US policies will likely change the tenor of domestic politics in Germany, as well as other key countries—and at the European level. On net, it adds to a multi-front push for greater investment, reshoring, and defense capacity building.
  
  

CHINA

SOURCE OF GLOBAL DISINFLATION  

• Look for recovery, not rebound. The Chinese economy shows signs of green shoots. But deflation will not end in 2025.
• Uncertainty persists about scale and effectiveness of stimulus. Our conviction remains low with regard to a fiscal-led growth rebound in China.
• A US tariff hike on Chinese products would pose more downside risks to China’s growth and inflation outlook in 2025, likely leading to further declines in market rates, in our view.
  
  

CENTRAL AND EASTERN EUROPE, MIDDLE EAST, AND AFRICA
(CEEMEA)

SPECIFIC GROWTH AREAS

• The Gulf Cooperation Council countries (the GCC) continued to see impressive non-oil growth particularly in Saudi Arabia and the UAE. The non-oil growth in Saudi Arabia remains driven by state spending on projects within Vision 2030, which is causing leverage to increase within the system.
• Within the group of central and eastern European countries (the CEE), Poland remained the growth outperformer owing primarily to strong private consumption, which outweighed weaker exports on lower external demand. The rest of the CEE, namely Hungary and Czech Republic, continued to suffer from the industrial slowdown in western Europe and domestic demand unable to keep up with that of Poland.  
• Both Turkey and South Africa have seen market jitters, but the overall direction of policy remains constructive. We would look to the budget in South Africa and inflation data in Turkey as key things to watch in coming weeks for confirmation either way.
• While the prospects for some sort of deal between Washington and Moscow over Ukraine appear to be growing, we are skeptical of bullish prognostications in the market about Ukraine itself.
  
  

JAPAN

JAPAN INFLATION RISES 

• Steady price pressures contributed to a fifth straight increase in Japan’s inflation rate. The Bank of Japan reported that inflation reached a seven-month high of 4.2% in January.[4]

• The central bank will continue to hike rates further because real interest rates are still negative.

ASIA PACIFIC

TARIFF THREAT LOOMS

• Growth headwinds are intensifying as many small open EM Asia economies face looming tariff risks.
• Those countries with sizeable trade surpluses with the US, or indirect negative spillover from supply chain linkages, face direct tariff threat.
• Regional central banks may be cutting less aggressively as Asian foreign exchange comes under pressure amidst US dollar strength. We expect a continued but shallower easing path.

Endnotes

[1] Bloomberg Consensus estimate, 17 February 2025.

[2] Bloomberg, 14 February 2025.

[3] European Central Bank, 30 January 2025.

[4] Bank of Japan, 3 February 2025.

Disclosure

SAIFzfn58qll

This marketing communication is provided for informational use only and should not be considered investment advice. The forecasted views and opinions expressed reflect those of the Loomis Sayles Macro Strategies Group and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. All statements are made as of the date indicated and are subject to change at any time without notice. Descriptions assume normal market conditions. Numbers are approximate.

Market conditions are extremely fluid and change frequently.

Commodity, interest and derivative trading involves substantial risk of loss. This is not an offer of, or a solicitation of an offer for, any investment strategy or product.

Any investment that has the possibility for profits also has the possibility of losses, including the loss of principal.

Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.