Growth

While the global economy has been surprisingly resilient in H1 2025 given the US tariff shock, it remains on a fragile footing and susceptible to downside shocks
Nonetheless, our base case view remains for the global economy to continue to muddle through. Global real GDP growth is forecast to slow from a 3.3% pace in 2024 to close to a 3% pace over coming years, around ½ ppt below the pace seen in the decade prior to COVID.
The US economy is forecast to slow to a below-trend pace in Q4 2025 given the fallout from the tariffs and government shutdown, with a recovery building in 2026 due to more expansionary fiscal policy from the One Big Beautiful Bill.
China’s economy held-up well over H1 2025 due to increased policy stimulus from Chinese authorities. However, momentum has started to cool due to China’s anti-involution policy and growth is expected to slow in H2 2025 and 2026.

Inflation

Although tariff impacts have been relatively modest to date, we expect higher tariffs will place upward pressure on US inflation in H2 2025 to ~3¼%.
However, we expect the tariffs will only provide a one-off lift to US prices and underlying inflation pressures should gradually dissipate over the course of 2026 given softening labour market conditions and weaker wage growth.
Inflation is expected to start to undershoot target in the euro area in 2026, while inflation in the UK will slowly recede in 2026 after sticky inflation in 2025.

The US Federal Reserve (Fed) faces a difficult trade-off between its full-employment and inflation mandate.
Following the Fed’s September cut, we expect 50bps of cuts from the Fed in Q4 to prevent a more significant deterioration in the labour market, with a further 25bps of cuts expected in 2026.
QIC expects only one further rate cut by the ECB in 2025, while the BOE is expected to pause over the remainder of 2025 before resuming rate cuts in 2026.