2025 will be another year of treading water

We believe that recent jitters about US growth prospects are overdone. While US GDP growth will slow a bit, we don’t think this will lead to a substantial deceleration in global growth. Our baseline forecast is for the world economy to expand by 2.7% for the third year running in 2025.

What you will learn:

• Underpinning this benign view is the belief that advanced economy household spending will remain solid. Rising real wages and modest employment growth point to respectable real household disposable income growth. US household spending could grow at a slower pace than consumer spending, as households push their savings rate back up to more normal levels, but high savings rates and healthy balance sheets point to resilience elsewhere.
• Fiscal policy could again trigger growth surprises, but on balance it looks set to be broadly neutral. The gradual reduction in policy rates combined with the lags in the transmission mechanism suggest the benefits to growth from looser monetary policy will be small in 2025.
• It’s too soon to conclude that US exceptionalism is over. While US economic growth is slowing, we think the evidence used to argue that the US is entering a recession is pretty flaky. We expect growth to remain pretty close to its trend over the coming quarters.