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Global Economics Quarterly
Frontloading ahead of US tariffs lifted global growth in the first quarter of 2025- but more US tariffs loom, while complex trade and fiscal negotiations are ongoing, and major conflicts are still under way. The US Federal Reserve and European Central Bank seem set for a summer pause, unlike many governments and central banks.
Uneven ground
The recent escalation of conflicts in the Middle East is the latest shock to strike in a highly unpredictable global economic environment, adding fresh uncertainty to the outlook.
Our broad view is largely unchanged from that set out in our April interim forecasts, however. We see heightened uncertainty from an array of US policies, including tariffs and immigration, delivering a significant blow to US and global growth, with a diverse impact on inflation and monetary policy.
Global trade and US consumer spending data will likely be volatile over the next few months and hard to read after a clear “frontloading” bounce in the first three months of 2025. Many economies saw stronger-than-expected export and GDP growth as US imports surged in anticipation of tariffs; some payback is now inevitable.
We see global GDP slowing from 2.8% in 2024 to 2.5% in 2025. Thanks to strong growth in Q1, we have upgraded our forecasts for India and Brazil. Our 2026 global GDP forecast is 2.3% in 2026.
2.5%
Global GDP growth in 2025, HSBC forecast
2.3%
Global GDP growth in 2026, HSBC forecast
We will be tracking some key themes and questions to understand how the global economic situation could develop.
Multi-purpose tariffs have further to run.
It is very clear that US tariffs are and will continue to be a multi-purpose tool that will mean higher inflation and lower growth in the US.
Trade growth to slow and reconfiguration ongoing.
We forecast global trade growth of just 1.8% in 2025 and 0.6% in 2026. Some countries could see relative gains, however, by supplying some of the components and products currently sourced in mainland China if US trade actions make the latter prohibitively expensive.
Soft vs hard data.
A key question is if, or when, the ‘hard’ data – including labour market indicators and retail spending – will follow ‘soft’ data on business sentiment and consumer confidence, and start to weaken. There are emerging signs that some US hard data is starting to deteriorate.
Consumer spending divergences.
We forecast US consumer spending to slow on the back of weaker employment, slower real wage growth and a softer housing market. In the eurozone and China, a consumer recovery hinges on households making no further increases to already elevated savings rates.
Inflation and inflation expectations.
It may not be evident in the inflation data yet but we expect the supply shocks from US tariffs and lower immigration to mean sticky US core inflation. For the rest of the world, however, US trade policy, China trade diversion and weaker demand should be disinflationary.
Central bank divergences.
The US Federal Reserve's conflicting challenges on how to address the risks of higher inflation and lower growth mean we still expect it to cut rates but by no more than 75bps by end-2026. We think the European Central Bank will stay on hold from here but we forecast the Bank of England to cut rates to 3% by Q3 2026.
Fiscal challenges in focus.
Investors will be keeping a close watch on the fiscal picture in the US, France, and Japan. Potential concerns about the sustainability of public spending could put pressure on other sectors of the economy.
Investment reallocation.
Data suggest investors have reduced their exposure to US assets somewhat over recent months. Policymakers in Europe and China have been talking about the need for a “multi-polar” world with a less dominant role for the US dollar. Realistically, however, that could take some time; and in fact, gold has overtaken the euro as a reserve asset for central banks.
The first six months of 2025 have been a rollercoaster for the global economy. But with major conflicts under way, and deadlines looming for bilateral trade deals and US fiscal negotiations, there is more to come. An eventful few months lie ahead.
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