What's on the Horizon for the Global Economy?

Our view in a nutshell

Japan

• The core of new PM Takaichi’s policies will be national crisis management and an expansionary fiscal policy.
• (1) Defense, (2) investment of $550bn into the US and (3) FX will be the focus in the Japan-US summit on 28 October.​​​​
• We continue to expect the BOJ’s next rate hike in January 2026, though it could be brought forward to December 2025.
• The market focus will shift to fiscal policy, leading to a FY25 supplementary budget, a FY26 budget bill and tax revisions package.

China

• Seemingly resilient 4.8% y-o-y growth in Q3 hides several underlying serious challenges for Beijing.
• The economy is facing serious challenges, including consumption growth slowdown, investment slump and protracted deflation.
• Following the conclusion of the 4th Plenum, Beijing will be compelled to step up its policy support to stabilize growth in Q4.
• Fiscal expansion will likely be stepped up, policy rates could be cut moderately, and arrears might be further cleared.

Rest of Asia

• Despite higher tariffs, exports have remained resilient so far, but we see a gradual moderation ahead.
• The strong tech/weak non-tech divergence will likely continue. This favors Taiwan, Korea and Singapore over Thailand and Indonesia.
• Inflation is near its trough, but low inflation will likely sustain from subdued input costs, a negative output gap and China overcapacity.
• Low inflation means there is space for policy easing, but central banks are turning more cautious to save bullets for a rainy day.
• Korea: Amid a house price surge and a memory supercycle, the BOK is likely to hold the policy rate steady through end-2026.
• India: Trump’s 50% tariffs are growth negative. Weak growth and underwhelming inflation should lead to 50bp of further rate cuts.
• Indonesia: Populist measures of the new government raise fiscal risks while current account deficits continue to widen.
• Australia: With better growth momentum and stronger inflation pressure we forecast only one final rate cut, in February.
• New Zealand: We expect growth to progressively recover and think the RBNZ easing cycle has most likely concluded.

United States

• We expect two additional cuts this year in October and December.
• Less emphasis on inflation risks and a likely shift in Fed leadership in 2026 are likely to lead to 3 cuts in 2026.
• Data released since the June FOMC have shown a sharp deterioration in employment and less inflation pressure than feared.
• We expect the OBBBA to be modestly stimulative in the near term, given frontloaded incentives and backloaded spending cuts.
• The labor market is rapidly losing momentum, and risks remain skewed to the downside.

Canada

• We now expect the BoC to cut by 25bp in October, reaching a terminal rate of 2.25% one meeting earlier.
• The September LFS reported solid job gains, likely allaying some of the BoC’s concerns around a steep downturn.
• Slowing domestic demand, lower energy prices, and falling rents are likely to weigh on prices in the coming months.

Euro Area

• While fiscal policy should be growth-positive in the medium term, higher tariffs make the near-term view more challenging.
• We see HICP inflation of around 2.0% in H2 2025. Services inflation is sticky but moderating.
• We believe the ECB has finished its cutting cycle as we expect GDP growth to accelerate and inflation to be at target in H2 2025.
• The ECB began full roll-off of APP portfolio redemptions in July 2023 and PEPP portfolio redemptions in January 2025.

United Kingdom

• GDP growth was strong in Q1 and a resilient 0.3% q-o-q in Q2. However, underlying private domestic demand remains weak.
• Downside risks: higher yields, weak confidence and a weaker job market. Upside risks: strong wage growth, US trade deal.
• Headline inflation is rising again, partly due to base effects and energy, but we see it returning to target in 2026.
• We expect quarterly Bank Rate cuts until February 2026. Markets see a slower progression.

Scandinavia and Switzerland

• Switzerland: Inflation is near zero, but we expect it to pick up, preventing another policy rate cut from the SNB to a negative rate.
• Sweden: Economic activity remains weak but is improving. Inflation is likely to slow. We think the Riksbank’s cutting cycle is over.
• Norway: Norges Bank has cut its policy rate twice in 2025. Inflation stays high and we expect a slower pace of cuts going forward.

CEEMEA

• Türkiye: Under the new economic program, inflation continues to decrease despite some delays in meeting interim targets.
• Türkiye: Due to resilient growth and upside risks to inflation, the CBRT maintains its hawkish stance to anchor expectations.

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