After the major upheaval of ‘Liberation Day’, the dust has settled somewhat. The level and scope of the new US tariffs are now largely known, and advanced economies are continuing to show resilience. Despite significant fluctuations in trade in the first half of the year, global trade has been braodly unaffected so far. The combination of headwinds (US tariffs, uncertainty) and tailwinds (low oil prices, Fed rate cuts, European measures) explains the gradual nature of the slowdown (in the US) and the recovery (in the Eurozone). The Eurozone is doing relatively well: with growth expected to strengthen and inflation under control, it is escaping the stagflationary scenario seen in the US, the UK and Japan.
US tariffs rose sharply in two stages: first in April, then following the signing of multiple trade agreements this summer. The impact of the first stage of this tariff increase is well known: trade flows to the United States were severely disrupted. However, global trade remains dynamic, particularly in Asia (a structural phenomenon) and Europe (which should benefit from internal momentum with the rebound of the German economy). The restructuring of trade flows (already underway with the rise of China) could accelerate as different countries seek elsewhere the opportunities lost in the United States.
Growth in the United States has slowed significantly compared with 2024 and is expected to remain moderate in the coming months, while maintaining some dynamism. Inflation is gradually rising again, mainly due to higher tariffs, while the labour market is already showing clear signs of weakening. These developments are resulting in a rebalancing of risks around the Federal Reserve's (Fed) dual mandate: downside risks to employment are increasing relative to upside risks to inflation. In our view, this should prompt the Fed to make two further cuts to its policy rate between now and the end of 2025, following the September cut. At the same time, fiscal policy is unlikely to stem the rise in the public debt ratio.
Growth in the Eurozone has so far proved fairly resilient to shocks (accompanied in particular by an acceleration in new lending against a backdrop of falling interest rates) and should gradually accelerate. Exports will continue to be weakened by Chinese competition and US protectionism. However, the foreseeable rebound in German growth will benefit economic activity in the Eurozone as a whole. Moreover, the buoyant labour market is supporting household purchasing power, without generating inflationary pressures, giving the ECB visibility and room for manoeuvre if necessary.
The resumption of German growth has been hampered by US tariffs. However, the outlook continues to brighten thanks to the government's strategy, which is structured around a vast programme of public investment and incentives for business investment. Beyond the anticipated economic rebound, the structural recovery of growth will depend on the country's ability to control its value chains and reposition itself in global trade amid increased competition. Inflation is expected to continue to decline. Despite unfavourable developments in industry, unemployment remains contained, and labour market tensions could quickly resurface. Public debt is expected to grow as a result of the widening budget deficit and rising interest rates (the effects of which will be felt by other Eurozone members).
France recorded a rebound in growth to 0.3% q/q in Q2 2025 after a more unfavorable period marked by political uncertainty. Although this uncertainty persists, the rebound in growth should be sustained. Unlike the political situation, other aspects of the French economy have improved (agricultural and aeronautical production, interest rates in the private sector, investment) or are on track to do so (German demand). The stabilization of the labor market and the sharp increase in business creation already confirm the rebound.
In Q2 2025, Italy's real GDP fell by -0.1% q/q. This decline marks the end of seven consecutive quarters of growth. Investment rose (+1% q/q) but could not compensate for the fall in net exports, while industrial production slipped 1.1% y/y. Despite the challenges, the latest turnover data and qualitative indicators show an increase in activity and new orders, as well as improved business confidence. The labour market remains robust: employment held steady at 24.2 million and the unemployment rate kept falling. Inflation stayed low at 1.7%, enabling purchasing power to rebound (+0.9% q/q)
After a strong first half of the year, Spanish growth should remain higher than that of its European neighbours in 2025 and 2026. Domestic demand is likely to remain the main driver, primarily supported by job creation, while the contribution of foreign trade is expected to become slightly negative. The budget deficit and the debt-to-GDP ratio should continue to benefit from significant nominal growth, which is nevertheless expected to slow gradually. Weak productivity could, however, hold back potential growth in the longer term, particularly as the available labour force begins to shrink.
Belgian growth fluctuated in the first half of this year, with a strong Q1 followed by a slowdown in Q2. Nevertheless, our nowcast for Q3 points to growth of 0.3% q/q, with renewed confidence among households and businesses. Export growth was subdued, hit by tariffs and the related uncertainty. However, the wage catch-up in neighbouring countries should improve Belgian’s competitiveness (wages are now rising faster than inflation in comparable European countries). House prices continue to rise, but the low number of new homes makes them less affordable. The public debt ratio is increasing by 2 percentage points per year and increased commitments to NATO are widening the deficit. The government has no choice but to take difficult decisions to reduce it.
After solid growth in H1 2025, the second half of the year is expected to see a slowdown (under the weight of US trade policy and UK fiscal policy). Despite the downside risks on the labour market and industry difficulties, growth is expected to be at a higher and stable rate in 2026 (+0.3% q/q on average) thanks to monetary easing. However, the policy mix will remain moderately restrictive, constrained by high inflation and gilt market pressures. Striking a balance between fiscal consolidation and growth remains a challenge in the UK.
The Japanese economy has been showing some momentum for just over a year. However, this performance is likely to fade in the second half of the year, not least as a result of the tightening of US trade policy. The labour market remains tight, and inflation continues to exceed the 2% target. Caught between an economic situation that may signal a weakening and a sharp rise in long-term interest rates amid fiscal concerns, the Bank of Japan (BoJ) is exercising extreme caution by raising its policy rate very gradually.
A series of six charts showing key economic indicators (GDP, inflation, unemployment, current account balance, budget balance, public debt ratio) and comparing the situations of the major advanced economies.
Under the impact of the Trump administration's tariff policy and the acceleration of US-China decoupling, global economic growth is expected to slow, international trade to reconfigure and the reorganization of value chains to continue. These changes will have multiple effects on emerging countries. Their export growth will slow and competition from Chinese products will increase. Some countries could nevertheless take advantage of new opportunities to attract FDI and develop their manufacturing base.
The sharp increase in US tariffs on Chinese imports is a major blow to Chinese exports and economic growth. However, Beijing has prepared for this, and the impact will be partially offset by its response strategy. In the short term, this strategy consists of redirecting exports to other markets, continuing monetary and fiscal policy easing, and boosting private consumption. The redeployment of exports has begun, but it could quickly run into new protectionist barriers. Domestically, the challenge will be to restore household confidence while the labour market may suffer as a result of the slowdown in the manufacturing sector.
India's economic growth is slowing down. Household consumption is sluggish, hampered by slower real wage growth and rising debt burdens, and private investment is weak. Given its low degree of openness, India will be little affected by US tariff increases, but it is unlikely to be spared altogether. Its room for negotiation with the Trump administration is limited. However, its domestic market is vast and allows for diversification of production in Asia. In order to take advantage of the Sino-US trade war, India will need to address the structural constraints weighing on the development of its industry quickly. However, the government's room for manoeuvre to push through reforms in the short term is very limited.
Thailand's real GDP growth remained solid in Q1 2025, but downside risks are high. Thailand is one of the Asian countries that has benefitted most from the trade tensions between the US and China, but the effects of the further tightening of US trade policy could be more painful. Its products might be taxed more heavily than those of its competitors in the US market, while the influx of Chinese goods could increase significantly. However, it could also benefit from new investment from foreign companies seeking to diversify their production chains. It has many advantages over some of its neighbours.
The tightening of US trade policy presents Brazil with numerous challenges and pressure points through its effect on economic growth, commodity prices, the need to defend its export market shares and heightened competitive pressure within its borders stemming from the rerouting of inexpensive goods. However, this new environment also presents Brazil with opportunities to reposition itself in the global trade landscape enabling it to take advantage of the reconfiguration of trade flows and global value chains. This shifting geography could also act as a catalyst to accelerate its trade integration (Mercosur, EU, Canada, Mexico). In the short term, however, the most pressing challenges will be domestic
The outlook continues to deteriorate in Mexico, one of the countries most exposed to US economic policy. The Mexican economy is set to contract in the coming quarters, with weak domestic demand unable to offset the marked slowdown in exports. Mexico's Minister of the Economy has begun talks with Washington on a faster-than-expected renegotiation of the USMCA free-trade agreement. The aim is to reduce the short-term uncertainty surrounding bilateral relations between the two countries.
GDP growth is holding up rather well in Chile, buoyed by the mining sector and a solid domestic demand. The outlook is relatively favourable: inflation is contained, fiscal consolidation should continue and political risk remains moderate in the run-up to the presidential election at the end of the year. Lastly, apart from the announcements regarding the copper sector, the direct impact of the increase in tariffs imposed by the Trump administration on the Chilean economy is relatively low. Indirect effects, volatile commodity prices and uncertainties over the pace of progress in the global low-carbon transition, on the other hand, represent a very significant risk for the Chilean economy.
After picking up again in fall 2024 and winter 2025, the Turkish economy is expected to bend. This is due to financial tensions since mid-March, the impact of US tariff increases on exports, and a more restrictive fiscal policy. But it will not break. Our scenario remains one of continued gradual disinflation, which would allow the monetary easing cycle to resume. The government's solvency should continue to strengthen, but external vulnerability, due to volatile portfolio investment, is likely to increase. However, with moderate twin deficits, historically low public debt and a solid banking sector, financial stability is not at risk.
The unexpected decline in Hungarian GDP in Q1 2025 will probably be followed by modest growth over the next few quarters, with consumption as the main pillar. However, Hungary will not escape the negative consequences of the US tariff shock, as it is a very open economy. More intense competition from China is expected, particularly on medium and high-tech products. Nonetheless, China remains a major investor in Hungary, mainly in the automotive sector.
Our growth forecasts have been revised downwards due to the tariff shock initiated by the United States, and the country's industrial specialisation. Slovakia is the most exposed Central European country to the Trump administration's tariff measures. The economy is heavily dependent on foreign trade and the automotive sector. The Slovak economy should avoid a recession thanks to public investment and consumption. The rise in inflation at the start of the year, following the increase in the VAT rate, is temporary and limited, and should not weigh heavily on consumption. In the medium term, the German stimulus plan and FDI inflows will be supportive factors for the economy.
The Slovenian economy is very open, making it highly sensitive to the economic situations of its main partners and to trends in world trade. The slump at the start of the year is due to the disruption in world trade. Household consumption and public investment should continue to underpin activity. Inflation is edging up on the back of wage pressures and a possible rise in energy prices. The resumption of government spending should lead to an increase in the budget deficit, but without causing any slippage and while keeping debt trends under control. The effects of US trade policy should remain moderate. However, the German economy remains the key factor in Slovenia's external performance.
In South Africa, the coalition government formed in June 2024 is overcoming its strong internal divisions one way or another. After three months of stormy negotiations, the final version of the 2025/2026 Budget, presented to Parliament at the end of May, was recently approved by all coalition parties. This is a necessary condition for regaining investor confidence, but it is not enough. The government will also have to ease diplomatic tensions with the United States. Without a significant rebound in investment, economic growth is likely to remain weak over the next three years, contributing to the fragility of public finances.
The outlook remains positive despite international turmoil. The United Arab Emirates (UAE), which is relatively unaffected by the tightening of US trade policy, has room to manoeuvre to cope with lower oil prices and the slowdown in global trade. Its economy is more diversified than that of other Gulf countries. It is also driven by its strong attractiveness to foreign investment and the support of the government. In the longer term, the UAE could also benefit from a potential reconfiguration of trade flows and leverage its assets to maintain its strategic relationship with the United States.
EcoPerspectives is the quarterly review of advanced economies (member countries of the Organisation for Economic Co-operation and Development) and China.
It provides an outline of several advanced economies using indicators for the past quarter and it looks ahead in order to better understand and anticipate the main economic problems of the countries in question.
For EcoPerspectives, economists from the advanced economies team regularly monitor the key economic indicators of selected countries. In particular, our experts use the quarterly forecasts provided by BNP Paribas (for growth, inflation, exchange rates, interest rates and oil prices). Each economist analyses the economic situation of one or more countries, based on the available indicators, in order to see how they change, including the industrial production index, quarterly gross domestic product (GDP) and inflation forecasts, the consumer price index (CPI) and the producer price index (PPI), and employment and unemployment figures. How various stakeholders’ views evolve is also studied and analysed closely (e.g. household confidence and business climate). The author comments on the main factors that influence and determine the economic activity of the country concerned and the economic outlook for the coming quarter.
