GDP growth and InflationUNITED STATES
The US economy showed remarkable dynamism in 2024, with an average annual growth rate of +2.8% in 2024 (+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 to around +0.3% t/t (from +0.6% to +0.8% in 2024), reducing the average annual growth rate to +1.8%. This weakening would result from a mechanical return to the average amplified by the effect of uncertainty and tariff shocks on demand. 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 +3.7% a/a in Q4-2025. 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 continued to accelerate in Q4 2024 and 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. Beijing has kept its economic growth target at “about 5%” this year. Economic policy will remain 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. Besides, the export sector will suffer from a rising number of protectionist measures. 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 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%, compared with an expected figure 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 remain somewhat tilted to the downside. The gradual deterioration in the labour market as well as the decline in activity in the industrial and retail sectors (visible in the latest PMI and CBI surveys) could lead to a faster monetary easing than currently anticipated.
JAPAN
A rebound in activity is expected in 2025, with a +1,1% average annual GDP growth rate. This would take over from a slowdown in 2024 (+0.1%), mainly attributable to a negative 2023 carryover effect along with the Q1 contraction linked to one-off factors. Household consumption should benefit from the upward trend in wages over the coming quarters, that the 2025 Shunto will probably extend after the 2024 high result. Nevertheless, domestic demand remains endemically weak, while supply constraints keep weighing on potential output. In this respect, the +0,1% quarterly advances anticipated for 2025 point to an output gap close to neutral. The Bank of Japan has initiated a monetary tightening cycle in 2024 which is pursuing in 2025, but with heightened cautiousness, while core inflation should remain above the 2% y/y target until 2026. Also, we forecast two rate hikes (+25bps each) in 2025 following January’s movement, bringing the uncollateralized overnight target rate to +1.0% by year-end – its highest level since 1995.
EXCHANGE RATES
Structural changes in fiscal policy 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.
Exchange rates
