GDP growth and InflationUNITED STATES
The US economy is heading towards a sharp slowdown in 2025, contrasting with the remarkable dynamism displayed in 2024, illustrated with a +2.8% average annual growth rate (+2.9% in 2023), well above its long-term pace. Household consumption was the main driver. But there are early signs of a slowdown. In 2025, the sequential growth rate is expected to slow markedly, reducing the average annual growth rate to +1.3%. This weakening from the effect of uncertainty and tariff shocks on demand and the general macroenvironment prompted a return of the recession risk. Developments in 2024 on the inflation front suggested a soft landing, with CPI moderating to +2.7% a/a in Q4-2024. However, changes in economic policy should lead to a rise in inflation, up to +4.0% a/a in Q2-2026. As a result, after 1pp of cumulative decline in the second half of 2024, the Fed is expected to maintain a stable target range for the Fed Funds rate throughout 2025 (+4.25% – +4.5%).
CHINA
Economic growth stood at 5% in 2024. Domestic demand has benefited from all the monetary, fiscal and property policy easing measures implemented since late September. Meanwhile, manufacturing activity has been boosted by the strong performance of exports. However, activity already lost momentum in the first two months of 2025 and the export sector is now going to suffer from the collapse in trade with the US, if the prohibitive tariffs introduced by President Trump are maintained. Economic policy will turn even more supportive, and the strengthening of private consumption will be a key priority for the authorities. However, domestic demand will remain held back by significant brakes, including the continued correction in the property sector and low consumer confidence. Deflationary pressures will persist, nonetheless consumer price inflation is projected to accelerate slightly in the short term.
EUROZONE
According to our forecasts, the increase in military spending in Europe, and the significant fiscal support in Germany will provide a boost to the euro area growth in 2025 and 2026. The moderation of inflation, the continuation of the ECB's interest rate cut cycle, and the strengthening of the effects of NGEU funds will be additional supporting factors. Margins for growth will be limited in the short term by the protectionist turn in the United States, persistent difficulties in industry, underlined by the still low, albeit slightly better levels of PMIs, and uncertainty about the Chinese economy. We expect the ECB to cut policy rates by 25 basis points in April and June, until the deposit rate reaches 2% in June 2025, which is in the middle of our neutral rate estimate range.
FRANCE
GDP growth deteriorated to -0.1% q/q growth in Q4 (after 0.4% q/q in Q3 2024), mainly as the positive impact of the Olympics observed in Q3 (+0.2%) played on the downside on Q4 figures and as the activity level excluding this Olympics impact turned weaker (0.1% in Q4 compared to 0.2% in Q3), as a result of higher policy uncertainty. Disinflation is now visible and should continue in 2025 (the harmonized index should grow by 1% in 2025, compared to 2.3% in 2024) but household consumption growth remains disappointing. In 2025, GDP growth should decrease to 0.8% against a background of deterioration of the labor market and as a result of significant political uncertainty (after 1.1% in 2023 and 2024). In 2026, growth should accelerate to 1.2% as a result of German growth recovery.
UNITED KINGDOM
Activity is expected to strengthen slightly in 2025, to 1.1%, after a GDP growth of 0.8% in 2024. The policy mix (a combination of fiscal and monetary policies) should be more accommodative, although its positive effects should be limited given the very gradual decline in interest rates and the introduction of more restrictive fiscal rules. Inflation should remain significantly above the 2% target in 2025, supported by wage growth, which will nevertheless moderate. We forecast that the BoE will cut the bank rate at a pace of one cut per quarter in 2025, with the terminal rate not being reached until 2026. The degree of monetary restraint is thus expected to remain positive in 2025, although risks are somewhat tilted to the downside.
JAPAN
Japanese growth is expected to come to a standstill in 2025. In 2024, the average annual growth rate fell to +0.1%, a result mainly attributable to the negative growth achieved in 2023 and the contraction of Q1 linked to one-off factors. In the coming quarters, the rate of growth is expected to be zero or even negative, due to the uncertainty and negative consequences for Japanese exports caused by US trade policy. In addition, household consumption should benefit from the upward trend in wages, which the 2025 shunto (wage negotiations) will probably prolong after the record of 2024, against a backdrop of tensions in the labour market. Nevertheless, domestic demand remains structurally weak, while supply constraints weigh on potential growth. The average annual growth rate should, however, reach +0.7% thanks to the carry-over effect from 2024. Although the Bank of Japan began a cycle of cautious monetary tightening in 2024, raising the key interest rate to +0.5%, a suspension for the rest of 2025 is to be expected due to the expected slowdown in growth.
CHANGE
Structural changes in fiscal policy and the expected strengthening of GDP growth in Europe have led us to revise upwards our EUR-USD forecast for 2025 and 2026. The dollar's decline would be gradual but nevertheless limited by the restrictive monetary policy in the United States and the interest rate differential with the Eurozone.
Interest and exchange rates
