Mid-year Economic Outlook 2025-26

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Global GDP growth could hit the slowest pace since 2008 this year, outside of recession periods, according to our mid-year economic outlook for 2025-26. The US is expected to grow by +1.6%, helped by lower effective tariffs, while the Eurozone should see growth at +1.2%. The picture for emerging markets is more mixed, with some benefiting from FX appreciation and increased investment flows and others feeling the pinch of higher tariffs.
To hit the right note, we’ve selected summary songs to sum it up:
“Under Pressure”: Global growth will remain sluggish at +2.5% in 2025, the slowest since 2008 outside of recession periods. Trade forecasts for 2025 suggest a slight improvement: Global trade in goods is expected to grow by +0.3% (and global trade of goods and services +1%), driven by continued frontloading and rerouting, though 2026 remains subdued with projected growth of +1.2% due to persistent uncertainties.
Trade tensions, geopolitical risks and fiscal challenges could “Rock the Boat”. Global uncertainty continues to prevail at record-high levels. This will lead to a synchronized decline in the economic cycle in both developed and emerging markets, last seen in the second half of 2022 during peak inflation. Beyond the trade war, the US faces significant fiscal and monetary challenges, with the fiscal deficit projected to exceed 8% of GDP by 2026 and interest payments increasing due to high inflation and fiscal risks. The probability of a recession exceeds 30% and there are rising concerns over stagflation.
When it comes to interest rates, the Fed will be "(Sittin' on) The Dock of the Bay" while the ECB will "Drop It Like It's Hot". Central banks are taking divergent approaches, with the US Federal Reserve maintaining rates at 4.5% until December amid inflation concerns, set to peak at 3.9% by Q4 2025. The Fed is expected to cut rates to 3.5% by Q3 2026. In contrast, the ECB will continue its easing cycle amid low growth and disinflation, cutting rates to 1.5% by year-end.