The updated economic scenario and forecasts of the Economic research
Economic growth in emerging countries held up well in the first half of 2025. So far, US tariff measures have had little impact on global trade and therefore on their exports. Furthermore, domestic demand, another driver of growth in these countries, remains strong, in particular thanks to the support of domestic credit. Bank lending growth has returned to its pre-COVID level for a large number of countries, it exceeds potential GDP growth in real terms. This is a trend to watch, as it could lead to a deterioration in foreign trade and/or an increase in non-performing loans.
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Since the beginning of the year, China’s economic growth has proved to be more robust than expected. Exports have withstood US tariff attacks and household consumption has recovered thanks to government stimulus programs. However, large clouds are casting a shadow over the picture and are likely to slow growth in the second half of the year. On the one hand, trade tensions with the United States remain high and the tech war continues, even though Beijing and Washington have agreed to extend their truce until November. On the other hand, internal structural problems remain (real estate crisis, labour market fragility, low confidence in the private sector, deflation). Despite this gloomy backdrop, economic policy easing remains cautious
The August Employment Situation featured weak payroll growth and a rise in the unemployment rate. The release confirmed the downside risks surrounding the US labour market. The FOMC is expected to lower the Fed Funds Target Range (-25 bps) for the first time in 2025 at its 16-17 September meeting.
After a long decline of real long-term interest rates in advanced economies, the direction has changed in recent years. The prospect of rising private- and public-sector financing needs is raising concern that this movement is not over. Empirical research shows that the long-run dynamics of long-term interest rates are predominantly driven by economic growth, demographic factors (life expectancy and working-age population growth) and financing needs (public debt and pensions). The first two factors are expected to continue exerting downward pressure, whereas upward pressure should come from the huge financing needs. Empirical estimates of the relationship between long-term interest rates and expected borrowing requirements point towards an impact that should be rather limited, all in all
Broadly speaking, the economic outlook for the global economy at the beginning of September remains largely unchanged from that at the end of July: namely, an economy that, overall, continues to withstand the double blow of US tariffs and uncertainty. Our current scenario expects an average annual growth of 1.6% in the United States in 2025, followed by 1.5% in 2026 and 1.3% in the Eurozone for both years (after 2.8% and 0.8% respectively in 2024). So, while the pace of US growth is expected to remain higher than that of the Eurozone, the outlook is for a slowdown across the Atlantic. On the Eurozone side, however, signs of recovery, albeit tentative, tend to predominate, to the point where the Fed is ready to resume its rate cuts and the ECB is ready to halt them
The latest economic news since July 21, 2025
The adverse effects of the Trump administration's trade and migration policies on US economic activity are emerging, as they were reflected in the July Employment Situation report and the economy as a whole is exhibiting further signs of a clear loss of momentum. Meanwhile, the trade agreements recently signed should ease the uncertainty shock. Finally, the rebalancing of risks associated with increased fears about employment could challenge the Fed's wait-and-see stance.
GDP growth figures for the first half of the year were clouded by a series of conflicting factors. In Q2, growth in the Eurozone was hit by a decline in exports, while imports in the United States led to a sharp rebound. This is a backlash from Q1, when additional exports, in anticipation of the tariff shock, had supported growth in the Eurozone, while penalising growth in the United States. Beyond this unusual volatility, it is the robustness of growth that is striking. In the Eurozone, German growth was back, although moderately, and monetary policy easing had an impact, with this robustness set to continue in the second half of the year. In the United States, the slowdown remained relative but is likely to strengthen due to the growing impact of tariffs on inflation and consumption.
As we enter the second half of the year, and after a first half marked in particular on the economic front by the tariff warinitiated by the United States, we suggest that we pause and look back for a moment. This will allow us to understand the dynamics that have shaped our economies over the last six months. It will also help us to identify to what extent and in what way they will impact the economic outlook for the second half of the year. What scenario should we expect?
Despite the slowdown in inflation and the increase in household purchasing power (measured by real gross disposable income), private consumption in the Eurozone remains weak compared to the pre-Covid period. This sluggishness can be explained by the gap between harmonised inflation and households' perception of price trends. Recent developments in inflation and households' opinions on past price trends show a more marked divergence than before. Since early 2025, the associated opinion balances have not moderated much. This reflects the persistence of inflation in households' perceptions despite the observed slowdown. Households probably still have in mind (at least in part) the cumulative increase over the entire inflationary episode, rather than that over the last 12 months.
Outside the US, GDP growth in the first quarter generally exceeded expectations in the European Union, the UK, and emerging economies, including China. After the surge in imports that preceded the US tariff hike, the backlash in the second quarter will be more limited than expected in most cases. However, it would be premature to sound the all-clear, as three dangers loom: tariffs, inflation, and public debt.
This time, these are not estimates based on models, but actual data provided by customs authorities. Partially available until the second quarter of 2025 in both China and Germany, they show a dramatic drop in exports to the United States in the wake of the tariffs imposed by the Trump administration, as well as the remarkable ability of international trade to redeploy when it is hindered in one area.
Our Q2 2025 nowcasts highlight the resilience of the Eurozone and, to a lesser extent, France. Weaker exports (after their surge in Q1 in anticipation of the US trade tariffs) penalises our forecast in Q2. It’s the opposite for the US with the Atlanta Fed nowcast at +0.7% for Q2. However, US GDP growth is estimated to have slowed down; that of the Eurozone is expected to be more stable. Japan is not expected to emerge from the stagnation observed in Q1.
