US Economic Growth Shows Mixed Signals Amid Policy Uncertainty
The United States economy presents a complex picture as it navigates through 2025, with growth projections varying significantly among major forecasting institutions. Real gross domestic product decreased at an annual rate of 0.5 percent in the first quarter of 2025, according to the U.S. Bureau of Economic Analysis, representing a notable slowdown from the previous quarter's 2.4% growth. However, longer-term projections remain cautiously optimistic, with the Congressional Budget Office projecting economic growth to cool from an estimated 2.3 percent in 2024 to 1.9 percent in 2025 and 1.8 percent in 2026. The divergent forecasts reflect uncertainty around policy implementation under the new administration, with some analysts warning of potential recession risks while others maintain more positive outlooks. EY anticipates real GDP growth will decelerate from 2.8% in 2024 to 1.5% in 2025 and 1.3% in 2026, with a 35% probability of recession over the next 12 months.
Consumer Spending Patterns Reflect Economic Resilience Despite Headwinds
Consumer spending continues to serve as a critical pillar of economic stability, though growth rates are moderating from previous years. Real consumer spending is projected to grow by 2.9% in 2025 and 1.4% in 2026, demonstrating the ongoing strength of household demand despite economic uncertainties. Consumer spending growth forecasts show US PCE grew by 2.8% in 2024, with consensus forecasts projecting 2.3% growth for 2025. Notably, spending patterns continue to favor services over goods, a trend that has persisted for three consecutive years and reflects changing consumer preferences post-pandemic. US consumers reported feeling nearly as optimistic in the first quarter of 2025 as they did at the end of 2024, buoyed by a robust economy with low unemployment, steady job growth, and stable inflation. This consumer confidence remains crucial for sustaining economic momentum, particularly as other sectors face potential headwinds from policy changes and global economic uncertainties.
Market Valuations and Currency Performance Navigate Volatile Territory
Financial markets in 2025 are characterized by heightened volatility as investors grapple with policy uncertainty and shifting economic fundamentals. J.P. Morgan Research estimates a price target of 6,500 for the S&P 500, with global equity markets likely to see dispersion across stocks, styles, sectors, countries and themes. The dollar's performance has been influenced by Federal Reserve policy adjustments and relative economic performance compared to other major economies. Bond market turmoil and austere fiscal policy could potentially lead the US into a recession in the fourth quarter of 2025, according to some forecasts, highlighting the risks facing financial markets. Market participants are closely monitoring the Federal Reserve's monetary policy stance, as the Federal Reserve continues reducing interest rates through the end of 2026, which supports economic activity, providing some cushion for both equity and fixed-income markets despite underlying economic uncertainties.
Labor Market Dynamics Show Signs of Moderation
The US labor market continues to demonstrate resilience while showing signs of gradual cooling from previously overheated conditions. The labor market has gracefully decelerated so far this year and remains in a balanced position, averaging roughly 150,000 jobs per month over both the previous three months. This moderation represents a healthy adjustment from the rapid job growth seen in previous years, bringing the market closer to sustainable long-term trends. Cooling labor demand and supply dynamics are contributing to the broader economic deceleration, though unemployment remains at historically low levels. The balanced nature of the current labor market provides flexibility for both employers and workers while avoiding the wage-price spiral concerns that dominated economic discussions in previous years. This stability in employment conditions supports consumer confidence and spending patterns, even as growth rates moderate across the broader economy.
Fiscal Policy and Government Spending Create Economic Crosscurrents
Government fiscal policy is emerging as a significant factor shaping the economic outlook, with competing forces of spending cuts and tax policies creating complex dynamics. Government spending cuts and layoffs continue over the next few years, which subtract value from overall growth, representing a drag on economic expansion that partially offsets private sector strength. The implementation of various policy initiatives under the new administration creates both opportunities and challenges for economic growth, with markets closely watching for clarity on trade policies, regulatory changes, and infrastructure spending plans. Budget considerations and deficit concerns are influencing policy decisions, potentially constraining government's ability to provide economic stimulus if needed. These fiscal dynamics add another layer of complexity to economic forecasting, as the magnitude and timing of policy implementations remain uncertain, creating both upside and downside risks to baseline growth projections depending on how effectively new policies are executed and received by markets and consumers.
Global Economic Growth Faces Headwinds from Trade Tensions and Policy Uncertainty
The international economic landscape for 2025 is characterized by modest growth prospects amid rising trade tensions and geopolitical uncertainties. Global growth is projected at 3.3 percent both in 2025 and 2026, broadly unchanged from previous forecasts, with an upward revision in the United States offsetting downward revisions elsewhere. However, other forecasting institutions present more cautious outlooks, with global economic activity expected to maintain modest momentum, with GDP growth projected at 3.0% in 2025, down from 3.2% in 2024. The divergent growth paths among major economies create challenges for global coordination and trade relationships. Global GDP growth is projected to slow notably this year and remain subdued in 2026, with growth potentially even weaker if there are additional increases in trade barriers and policy uncertainty. These conditions reflect the ongoing impact of geopolitical tensions, supply chain disruptions, and the lingering effects of previous economic shocks on international commerce and investment flows.
International Currency Markets Reflect Shifting Economic Fundamentals
Currency markets worldwide are experiencing significant volatility as central banks navigate different monetary policy paths and economic conditions vary substantially across regions. The US dollar's strength relative to other major currencies has been influenced by divergent Federal Reserve policies compared to other central banks, creating both opportunities and challenges for international trade and investment. European currencies face pressure from ongoing economic uncertainties and policy debates within the European Union, while emerging market currencies continue to experience volatility based on commodity prices, capital flows, and domestic economic conditions. Economic confidence remains positive in many regions, with consumption expected to be the main driver of growth in 2025, supported by employment and wages growth, alongside lower interest and savings rates. However, currency fluctuations are creating additional complexity for multinational corporations and international investors as they navigate cross-border transactions and hedging strategies in an environment of heightened uncertainty and policy shifts.
Commodity Markets Navigate Supply Chain Disruptions and Demand Shifts
Global commodity markets continue to experience significant volatility as they adapt to changing demand patterns, supply chain disruptions, and geopolitical tensions affecting key producing regions. Energy markets remain particularly sensitive to geopolitical developments, trade policy changes, and the ongoing global transition toward renewable energy sources. Agricultural commodities face challenges from climate-related disruptions, changing trade relationships, and varying demand patterns across different regions. Metal and mineral markets are influenced by infrastructure spending plans, manufacturing activity levels, and the ongoing digitalization trends that drive demand for specific materials. Stronger-than-expected growth in China and robust performance in the US pushed global growth to 3.6% in 2024, but growth momentum is expected to weaken, with global growth projected at 3.2% for both 2025 and 2026. This moderation in global growth affects commodity demand patterns, while supply-side factors including mining capacity, agricultural productivity, and energy production capabilities create additional price pressures across various commodity sectors.
International Employment Trends Show Regional Disparities
Global employment conditions vary significantly across different regions, with developed economies generally maintaining stable labor markets while emerging economies face more diverse challenges and opportunities. In low-income countries, growth is projected to rise to 5.3 percent in 2025 and average 6.1 percent in 2026-27, though this outlook hinges on de-escalation of conflict in some countries and moderation in inflation. Advanced economies continue to grapple with demographic challenges, skills mismatches, and the ongoing impact of technological automation on traditional employment patterns. The services sector continues to drive employment growth in most developed markets, while manufacturing employment faces pressure from automation, trade tensions, and shifting supply chain configurations. The labor market will grow, supported by services sector expansion, though the quality and sustainability of job creation vary considerably across different regions and sectors. Migration patterns, educational system adaptations, and workforce development initiatives are becoming increasingly important factors in determining regional competitiveness and economic resilience.
Trade Dynamics and International Investment Flows Face New Challenges
International trade relationships and investment flows are experiencing significant restructuring as countries adapt to new trade policies, supply chain resilience requirements, and shifting geopolitical alliances. Global economic prospects are weakening, with substantial barriers to trade, tighter financial conditions, diminishing confidence and heightened policy uncertainty projected to have adverse impacts on growth. Traditional trade partnerships are being reevaluated while new bilateral and multilateral agreements emerge to address changing economic and security priorities. Foreign direct investment patterns are shifting as companies prioritize supply chain resilience, regulatory stability, and market access considerations over pure cost optimization. The global economy is expected to experience robust growth in 2025, with the exception of a sharp slowdown in China, creating both opportunities and challenges for international businesses seeking to diversify their market exposure and supply chain dependencies. These evolving trade dynamics require businesses and governments to develop more flexible and adaptive strategies for international economic engagement while managing the risks associated with increased economic fragmentation and policy uncertainty.
GDP Rebounds but Growth Remains Fragile
After a mild contraction in Q1, U.S. GDP rebounded in Q2 with an estimated 2.9% annualized growth, largely due to a drop in imports rather than strong domestic demand 1. Consumer spending remains uneven, with declines in retail sales, housing starts, and construction activity. The rebound is seen as temporary, with forecasts suggesting slower growth in Q3 and Q4. Real GDP is expected to grow by just 1.6% for the full year, reflecting the impact of trade tariffs, fiscal uncertainty, and waning consumer confidence1.
Consumer Spending Shows Signs of Weakness
Consumer spending, a key driver of the U.S. economy, has softened in recent months. Personal consumption expenditures declined in May, and retail activity remains sluggish 1. High interest rates and inflationary pressures—especially in food and services—are weighing on household budgets. While gasoline and housing costs have stabilized, wage growth has not kept pace with inflation. Analysts warn that unless consumer sentiment improves, spending may continue to drag on GDP growth through the second half of 2025.
Market Volatility and Currency Trends
U.S. financial markets have shown resilience since mid-April, with equity indexes rebounding amid hopes that proposed tariffs may not fully materialize 2. However, the dollar remains strong, which has dampened export competitiveness. The Federal Reserve held interest rates steady in July and is expected to maintain this stance through late 2025. Treasury yields have declined slightly, and the Fed continues its balance sheet reduction at a cautious pace. Currency strength is helping contain import inflation but complicates trade dynamics.
Inflation Outlook and Fiscal Policy
Inflation is projected to moderate slightly in the second half of 2025, with CPI expected to average around 2.5% 1. A recent reconciliation bill introduced new tax cuts, including incentives for capital investment and reductions in personal income taxes. However, these are offset by cuts to social programs and increased tariffs, which may add to the fiscal deficit. The deficit is forecast to rise from 6.5% of GDP in 2025 to 7.0% in 2026, raising concerns about long-term debt sustainability.
Employment and Labor Market
The labor market remains tight but shows signs of softening. Unemployment declined slightly, though labor force participation fell to its lowest level since 20221. Job growth has slowed, particularly in manufacturing and retail. Continuing claims for unemployment benefits have risen, signaling potential weakness ahead 3. The Fed is closely monitoring labor trends, and while no rate cuts are expected until December, any sharp deterioration in employment could prompt earlier action. Wage growth remains modest, limiting consumer spending power.
Global Growth Slows Amid Trade Agitations
Global GDP growth is forecast to remain subdued at 2.4% in both 2025 and 2026, with advanced economies growing at just 1.3% 4. Trade tensions, particularly involving the U.S., have led to policy uncertainty and financial volatility. Tariff escalations have disrupted supply chains and dampened global trade, which is expected to contract in the second half of 2025. Emerging markets are more resilient but still face headwinds from currency depreciation and higher borrowing costs.
Currency and Commodity Markets
Currency markets remain volatile, with the U.S. dollar’s strength pressuring other major currencies. The euro and yen have weakened, while emerging market currencies face depreciation due to capital outflows and inflation concerns 4. Commodity prices are mixed—oil and gas have declined following Middle East ceasefires, while agricultural commodities remain elevated due to climate disruptions. Gold has held steady as investors seek safe havens amid geopolitical uncertainty.
Employment Trends
Labor markets in Europe and Latin America are showing signs of strain. In Brazil, manufacturing and services PMIs are in contraction territory, and unemployment is rising 2. Russia’s economic activity index has dropped significantly, reflecting broadening weakness. In contrast, China’s labor market remains stable, supported by modest stimulus measures. However, global employment growth is expected to slow, particularly in export-dependent economies affected by trade disruptions.
Economic Highlights
China’s economy has performed better than expected in H1 2025, prompting a slight upward revision in its GDP forecast to 4.5% 2. However, growth is expected to slow in H2 due to reduced stimulus and tariff impacts. Europe continues to struggle, with Germany facing persistent weakness due to its reliance on exports. Latin America is mixed, with Argentina and Brazil facing inflation and fiscal challenges. Africa and Southeast Asia show moderate growth, driven by domestic consumption and infrastructure investment.
Outlook and Risks Ahead
The global economic outlook remains uncertain, with risks including further trade escalations, geopolitical tensions, and financial instability. While recession is not the base case for most regions, growth is expected to remain below historical averages. Central banks are cautious, balancing inflation control with growth support. The second half of 2025 will be critical for determining whether current stabilization efforts can prevent deeper economic downturns. Investors and policymakers alike are bracing for a volatile but pivotal period.
U.S. GDP Growth Moderate Amid Tariff Headwinds
Real GDP in the U.S. contracted by 0.5% annualized in Q1 2025—primarily due to strong import growth and lower government spending—but bounced back modestly in Q2, with the Atlanta Fed estimating a 2.4% rebound
. Although recession remains off the baseline, downside risks are mounting, particularly if tariffs spike or global trade tensions worsen.
Consumer Spending and Household Debt Dynamics
Despite macro challenges, consumer spending remains resilient. Retail sales and personal income both grew by about 4.5% year-over-year in May, while core retail sales (excluding autos, fuel, and dining) rose 3.9%
National Retail Federation
. Deloitte expects real consumer spending growth to land at +1.4% in 2025, increasing slightly to 1.5% in 2026
. Yet household debt has climbed to $18.2 trillion, though still manageable at ~11% of disposable income—well below the 2008 high of 13%
. This suggests cautious, but steady, demand.
Inflation, Tariffs & Fed Policy Outlook
Inflation remains elevated at around 2.7% in June, with durable goods prices increasing by about 0.7% year-over-year
. Tariffs announced this summer—especially farther-reaching import duties—are expected to push prices higher, adding to inflation pressures
. A Fed Governor recently advocated for interest-rate cuts, warning that domestic growth has slowed to about 1% in H1 2025
Yet most Federal Reserve policymakers are reluctant to pivot until inflation has more sustainably eased, though Wall Street is now pricing in rate cuts by year‑end.
Market Sentiment & Asset Performance
U.S. equity markets have exhibited surprising strength; the S&P 500 and Nasdaq recently reached record highs, driven by robust corporate earnings (S&P earnings up 6.7%) and loose financial conditions
. According to a WSJ economist survey, recession risk has receded—now 33%, down from 45% in April—with companies and markets expecting continued gains into late 2025
The Wall Street Journal
.
Outlook: Slow Growth but No Recession—Yet
Domestically, the U.S. economy is in a "slow-flation" phase: growth slowing to 1–1.5%, inflation lingering around 3%, and unemployment steady at ~4.1%
. Household finances are under pressure from tariff-driven price increases and high debt, but consumer resilience and labor-market stability are helping absorb shocks
. If tariffs are eased and global trade normalizes, growth may reaccelerate. Otherwise, the risk of stagnation or mild recession remains significant.
International Economic Outlook
📊Global Growth Slowing Amid Trade Tensions
The World Bank and IMF project global GDP growth easing to 2.3–3.0% in 2025 (down from ~3.2% in 2024), driven by policy uncertainty and elevated trade barriers
. Developed markets are particularly vulnerable, with the OECD forecasting a drop to 1.3% growth, while emerging markets are expected to grow around 4–4.1%
. Tensions from U.S. tariffs continue to ripple across economies, pressuring investment and trade flows.
Currency Markets & Central Bank Actions
Strong U.S. dollar strength, bolstered by tariffs and monetary policy divergence, has restrained gold gains and pressured emerging-market currencies
. Equity markets in Japan and Europe have shown tentativeness amid political and inflation concerns
. Central banks in Australia and others have held rates steady, citing resilience in private demand and a "TACO" effect—anticipating tariff threats may be delayed or softened
Commodity Markets: Oil, Metals & Food Prices
The World Bank commodity index shows June energy prices up 9.7%, due largely to an 11.3% jump in crude oil
. Precious metals rose modestly (1.7–2.6%), while non-energy goods declined slightly. Elevated energy costs may fuel inflation in importing nations, but lower food prices (–1.4%) help ease some pressure
. Geo‑political events and shifting supply chains remain key downside risks.
Employment & Business Investment Overseas
Global labor markets vary: developed economies are seeing softer hiring, with some signs of stagnation. Investment remains cautious amid trade and geopolitical uncertainty
. Emerging economies, particularly in Asia, still show moderate resilience though growth is easing
. In China, sluggish property markets and weakening demand weigh on both investment and labor outcomes, resulting in slower projected growth.
Risks & Policy Outlook on the International Stage
Global risks include further escalation of tariffs, persistent political and climate-related shocks
. Authorities must balance inflation control with stimulus to prevent stagflation. With central banks winding down tightening and international cooperation still fragmented, the world faces a cautious and uneven economic landscape through 2026.
