UNITED 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, materialized by a GDP contraction (-0.1% q/q) in Q1 2025. While we expect a rebound in Q2 (+0.8% q/q), in 2025, the average annual growth rate should lower to +1.7%. This weakening would result from the effect of uncertainty and tariff shocks on demand and the general macroenvironment. 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 +3.4% 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 will slow and stand below 5% in 2025. Domestic demand will remain held back by significant brakes, including the continued correction in the property sector and low consumer confidence, but it will also benefit from the monetary and fiscal policy easing measures that have been implemented gradually since September and will continue in the short term. The strengthening of private consumption is a key priority for the authorities in 2025. Manufacturing activity was supported by the better-than-expected performance of exports in H1 2025, but it is expected to lose momentum as the export sector suffers from the weakening in global demand and the fall in trade with the US resulting from US tariff hikes. Deflationary pressures are currently persisting.
EUROZONE
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 around the 2% target, the ECB's interest rate cut cycle, which is near the end, 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 trade conflict with the United States, persistent difficulties in industry, underlined by the still low, albeit improving levels of PMIs, and uncertainty about the Chinese economy. We expect the ECB to cut policy rates by 25 basis points in September, until the deposit rate reaches 1.75% in July 2025, which is in the low end of our neutral rate estimate range.
FRANCE
GDP Growth reached 0.1% q/q in Q1, penalized by stagnant household consumption and a decline in exports (-0.7% q/q). It remained stable compared with growth in the fourth quarter of 2024 excluding the Olympic Games effect (-0.1% in Q4, including the backlash of the Olympic Games impact). Disinflation is now visible and should continue in 2025 (the harmonized index should grow by 0,9% in 2025, compared to 2.3% in 2024) but household consumption growth remains disappointing. In 2025, GDP growth should decrease to 0.6% 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 1.1% as a result of German growth recovery.
UNITED KINGDOM
Activity is expected to strengthen slightly at 1.2% in 2025 after growth of 1.1% in 2024. Increased defence investment in the UK and elsewhere in Europe will have a positive effect on GDP, while downside risks from trade tensions are mitigated by the agreement signed in May with the United States. 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. Although on a downward trend, inflation should remain significantly above the 2% target in 2025, supported by wage growth. 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.
JAPAN
Japanese growth is expected to come to a halt in 2025. In 2024, the average annual growth rate decreased to +0.2%, mainly due to the negative 2023 carryover, and the contraction in Q1 due to one-off factors. In Q1 2025, GDP growth was flat while, in the coming quarters, the pace of growth is expected to remain weak, under the effect of uncertainty and the negative consequences on Japanese exports induced by the United States' trade policy. Household consumption is facing inflation but is expected to benefit from the upward trend in wages, as the Shunto (wage negotiations) has exceeded the record set in 2024, against a backdrop of tensions on the labour market. Nevertheless, domestic demand remains structurally weak, while supply constraints are weighing on potential growth.?However, the average annual growth rate is expected to land at +0.7% thanks to the 2024 carryover effect. The Bank of Japan has started a cautious monetary tightening cycle in 2024, bringing the key rate to +0.5%. We anticipate one more hike (+25 bps) by year-end, in Q4, in front of persistent inflationary pressures.
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.
