The Global Economy is Forecast to Grow Solidly in 2025 Despite Trade Uncertainty

Economic

Summary:

Goldman Sachs Research forecasts another solid year of global economic growth in 2025. Our economists project the US will outperform expectations while the euro area lags behind amid fresh tariffs that are anticipated from the Trump administration.

Worldwide GDP is forecast to expand 2.7% next year on an annual average basis, just above the consensus forecast of economists surveyed by Bloomberg and matching the estimated growth in 2024. US GDP is projected to increase 2.5% in 2025, well ahead of the consensus at 1.9%. The euro area economy is expected to expand 0.8%, compared to the consensus of 1.2%.

“Global labor markets have rebalanced,” Goldman Sachs Research Chief Economist Jan Hatzius writes in the team’s report titled “Macro Outlook 2025: Tailwinds (Probably) Trump Tariffs.” “Inflation has continued to trend down and is now within striking distance of central bank targets. And most central banks are well into the process of cutting interest rates back to more normal levels.”

The world’s largest economy is expected to grow faster than other developed-market countries for the third year in a row. The re-election of US President Donald Trump is predicted to result in higher tariffs on China and on imported cars, much lower immigration, some fresh tax cuts, and regulatory easing. “The biggest risk is a large across-the-board tariff, which would likely hit growth hard,” Hatzius writes.

The Global Economy is Forecast to Grow Solidly in 2025 Despite Trade Uncertainty_1

Will changes in trade increase US inflation?

US core PCE inflation should slow to 2.4% by late 2025, higher than Goldman Sachs Research’s prior forecast of 2.0% but still a benign level. The forecast would rise to around 3% if the US imposes an across-the-board tariff of 10%. In the euro area, our economists expect core inflation to slow to 2% by late 2025. The risk of ultra-low inflation in Japan has abated.

“A key reason for optimism on global growth is the dramatic inflation decline over the past two years,” Hatzius writes. “This directly supports real income because price inflation has fallen far more quickly than wage inflation.”

“Just as importantly, the inflation decline also indirectly supports demand by allowing central banks to normalize monetary policy and thereby ease financial conditions,” he adds.

Goldman Sachs Research expects the US Federal Reserve to cut its policy rate to 3.25-3.5% (from 4.5% to 4.75% now), with sequential cuts through the first quarter and a slowdown thereafter. The European Central Bank, meanwhile, is expected to lower its policy rate to a terminal rate of 1.75%. Our economists find that there’s also significant room for policy easing in emerging markets. By contrast, the Bank of Japan is projected to lift its policy rate to 0.75% by the end of 2025.

How will Trump’s trade policy impact the US economy?

The effects of potential new US trade policies on US GDP are expected to be small and largely offset by other factors, according to Goldman Sachs Research’s baseline outlook. Potential tariffs would result in a modest hit to real (inflation adjusted) disposable personal income via higher consumer prices. The uncertainty of how much further trade tensions might escalate would likely weigh on business investment.

“Assuming that the trade war does not escalate further, we expect the positive impulses from tax cuts, a friendlier regulatory environment, and improved ‘animal spirits’ among businesses to dominate in 2026,” Hatzius writes.

The Global Economy is Forecast to Grow Solidly in 2025 Despite Trade Uncertainty_2

In Goldman Sachs Research’s base case, trade policies may have a net drag of 0.2 percentage points on US GDP in 2025. If larger than anticipated across-the-board tariffs are implemented, that could cause a net drag averaging 1 percentage point in 2026 (though it could be lower if tariff revenue is fully recycled into tax cuts).

The US has grown faster than other big economies and is predicted to continue doing so. Goldman Sachs Research points out that labor productivity in the US has increased at a 1.7% annualized rate since late 2019, a clear acceleration from the pre-pandemic trend of 1.3%. By contrast, labor productivity in the euro area has grown at a 0.2% annualized rate over the same period, a clear deceleration from 0.7% before the pandemic.

“We expect US productivity growth to remain significantly stronger than elsewhere, and this is a key reason why we expect US GDP growth to continue to outperform,” Hatzius writes.

How US trade policies may affect other economies

The economic headwind from US trade policy is expected to be greater outside the US. In the euro area, a rise in trade policy uncertainty to the peak levels of the trade conflict in 2018-19 would subtract 0.3% from GDP in the US but as much as 0.9% in the euro area.

Our economists reduced their growth forecast for the euro area in 2025 following the US election results by 0.5 percentage points (fourth quarter over fourth quarter) and would likely cut it further if the US imposes an across-the-board tariff. The Global Economy is Forecast to Grow Solidly in 2025 Despite Trade Uncertainty_3

The Global Economy is Forecast to Grow Solidly in 2025 Despite Trade Uncertainty_3

Goldman Sachs Research expects the impact of potential US trade policy on China to be even more direct. The world’s second-largest economy may face tariff increases of up to 60 percentage points and average 20 percentage points across all exports to the US. That’s forecasted to subtract almost 0.7 percentage points from growth in China in 2025. Our economists reduced their 2025 growth forecast modestly, by 0.2 percentage points on net to 4.5%, assuming Chinese policymakers provide stimulus and some of the growth hit is offset by depreciation in the renminbi.

“However, we would likely make larger downgrades if the trade war were to escalate further,” Hatzius writes.

The Global Economy is Forecast to Grow Solidly in 2025 Despite Trade Uncertainty_4

Likewise, other countries are also likely to be buffeted by US trade policy. Goldman Sachs Research expects larger drags in more trade-exposed economies, while certain emerging market countries could get a boost by gaining export share if trade shifts away from China.

Overall, however, global economic growth is expected to be solid despite the potential for US tariffs. Our economists estimate that changes to US trade policy will subtract 0.4% from global GDP, while increased policy support should dampen the hit. But much depends on the size of any new trade restrictions. The impact could be two to three times larger if the US imposes a 10% across-the-board tariff.

“Barring a broader trade war, policy changes in the second Trump administration are unlikely to change the broad contours of our global economic views,” Hatzius writes.

To stay updated on all economic events of today, please check out our Economic calendar

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ING

Economic

Forex

Breakout

As many had been fearing and our team had been writing this week, today’s softer-than-expected European PMI numbers have proved the catalyst for a downside breakout in the euro. The numbers feed into the narrative that European business confidence is crumbling – or at least sees no way out of stagnation – in an environment of looming trade wars and political gridlock in Europe.

Our team have been saying it for a while now, but it looks like European Central Bank rate cuts will have to do the heavy lifting again when it comes to supporting the eurozone economy. Today’s data triggered an 8-10bp drop in short-dated eurozone swap rates, pushing the ‘Atlantic’ rate differential to the widest levels of the year. The market is now starting to lean towards our house view of a 50bp ECB rate cut in December and bake in a sub-neutral 1.75% ECB policy rate for next summer.

When we lowered our EUR/USD forecasts earlier this month, this was largely on the view that US:eurozone rate spreads would widen and a risk premium from trade wars would be built in later in 2025. Actually, we’re having an internal debate as to whether that risk premium should be built in earlier.

At the same time, the escalation in the Russia-Ukraine war this week has added to euro downside. The understandable fear now is that this crisis escalates into year-end as both sides try to secure the best possible positioning ahead of potential Trump-led ceasefire discussions in January. Unlike in 2022, energy prices have been remarkably subdued, although we are starting to see European natural gas prices creep higher again – a clear negative for European currencies.

The two main arguments against much further EUR/USD downside are that EUR/USD has come a long way already and that the dollar normally weakens in December. On the former, the near 7% drop in just two months is exceptional. Could this fire up the ECB hawks who might be worried about imported inflation, or least prompt some kind of comments from ECB officials about a speed of adjustment that has been too quick for European businesses? We would not rule it out, but at most such comments should slow not reverse the current EUR/USD drop.

How far could EUR/USD fall? As Francesco Pesole wrote yesterday, EUR/USD is now a little undervalued based on our medium-term BEER model – but that doesn’t preclude a move to parity. Now that the 2023 1.0448 EUR/USD low has been broken, we certainly see scope to the next support zone down at 1.0190/0200.

And in terms of positioning, our colleagues in the FX Options team suggest that investors might not be as short EUR/USD as much as they had hoped after downside barriers have been triggered today – these barriers having been used to cheapen downside FX options structures but, by being triggered, have now cancelled those downside EUR/USD structures altogether.

EUR/USD breaks to the downside of exceptionally tight range

EUR/USD: Macro and Geopolitics Align for a Downside Breakout_1

Volatility regime change?

The narrow EUR/USD ranges of the last two years have been the exception rather than the rule. And it is tempting to say that the advent of Trump 2.0 – or Trump unleashed, as many commentators are calling it – can usher in a period of higher volatility. Certainly the EUR/USD FX options market is taking note and has pushed one year EUR/USD traded volatility up to the highest levels since October.

What holds us back from concluding that yes, we expect structurally higher levels of FX volatility in 2025, is that the peak Trump trade wars of 2018-2019 saw EUR/USD traded volatility actually decline. Here, it seems investors got used to Trump protectionism back in 2018/19. The difference in 2025, however, is that we could be talking a global trade war and not just protectionism against China, which was the case in 2018-19.

We also note in the chart above that EUR/USD is breaking to the downside from a historically low volatility environment – a warning of a volatility regime change.

Given the heavy macro/geopolitical factors favouring the downside and the fact that EUR/USD is not particularly undervalued based on our medium term models, we certainly do not want to stand in the way of a EUR/USD move to parity nor fight the rise in higher traded volatility levels.

Source:ING

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Warren Takunda

Cryptocurrency

Bitcoin came within 1% of $100,000 on Nov. 22 with bulls “chewing away” at final sell orders. Bitcoin Counts Down to $100K as Shorts Risk 'Violent Breakout'_1

Bitcoin Counts Down to $100K as Shorts Risk 'Violent Breakout'_1

BTC/USD 1-hour chart. Source: TradingView

Bitcoin eats up last supply below $100,000

Data from Cointelegraph Markets Pro and TradingView confirmed the latest new Bitcoin price all-time highs near $99,500 on Bitstamp.

After a brief dip below $96,000, BTC/USD rebounded into the Asia trading session to set up what could be a showdown with six figures.

Commenting on the action, trader Skew predicted that a “violent breakout” may result once the price clears ask liquidity near the key $100,000 mark.

“Still seeing limit bids moving higher with underlying spot buyers ~ Positive market signal,” part of an X post read.

“A lot of aggregate spot supply around $100K. Price currently is chewing away at this supply, before this has preceded a pretty violent breakout.” Bitcoin Counts Down to $100K as Shorts Risk 'Violent Breakout'_2

Bitcoin Counts Down to $100K as Shorts Risk 'Violent Breakout'_2

BTC/USDT 15-minute chart. Source: Skew/X

An accompanying chart showed ladders of asks clustered in the upper $99,000 area on the Binance order book.

Earlier, Skew eyed asks appearing above $100,000 as a suggestion that the market was pricing in further “parabolic” upside once it is reached.

Keith Alan, co-founder of trading resource Material Indicators, noted that some traders were tempted to short BTC at current levels.

“Shorts are getting lured in,” he reported, echoing Skew on the likely consequences.

“If you are taking the bait, be prepared to get squeezed.” Bitcoin Counts Down to $100K as Shorts Risk 'Violent Breakout'_3

BTC liquidations (screenshot). Source: CoinGlass

The day prior, data from monitoring resource CoinGlass confirmed, short BTC liquidations reached just shy of $115 million.

Binance avoids “FOMO” volume spike

Observing exchange activity, meanwhile, onchain analytics platform CryptoQuant noted a curious trend.

After spiking as the overall crypto market cap beat its old all-time highs earlier this month, Binance’s aggregate trading volume has declined.

“The recent surge in spot trading volume (60B) on Binance occurred on November 12, coinciding with the crypto market cap nearing its previous ATH.

“However, trading volume has since decreased by half meanwhile the total crypto market cap enters price discovery mode,” contributor Darkfost wrote in a Quicktake blog post.

“This decline in spot trading activity may suggest that the market is taking a breather, with investors exercising caution.” Bitcoin Counts Down to $100K as Shorts Risk 'Violent Breakout'_4

Bitcoin Counts Down to $100K as Shorts Risk 'Violent Breakout'_4

Binance spot trading volume (screenshot). Source: CryptoQuant

Source: Cointelegraph

Risk Warnings and Disclaimers

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Warren Takunda

Economic

The Euro to Dollar exchange rate slumped to below 1.04 for the first time in two years, putting it on course for parity after the S&P Global Eurozone composite PMI fell to 48.1 in November from 50 in October.

The market was expecting another reading of 50. A reading below 50 signals contraction for the Eurozone's private sector.

The Euro to Pound exchange rate fell a third of a per cent to 0.8297, giving a Pound to Euro conversion of 1.2050.

"Things could hardly have turned out much worse," says Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. "The eurozone's manufacturing sector is sinking deeper into recession, and now the services sector is starting to struggle after two months of marginal growth."

Looking at the subcomponents, the Eurozone manufacturing PMI remains in contractionary territory at 45.2, down from 46. But the deterioration is most noticeable in the services sector, with the PMI falling to 49.2 from 51.6, defying expectations for a slight improvement to 51.8.

de la Rubia says the economic deterioration "is no surprise really, given the political mess in the biggest eurozone economies lately."

He explains that France's government is on shaky ground, and Germany's heading for early elections. "Throw in the election of Donald Trump as US president, and it is no wonder the economy is facing challenges. Businesses are just navigating by sight."

The S&P Global survey revealed confidence in the outlook for output dropped to the lowest for just over a year.

Companies continued to face challenges securing new orders, which decreased for the sixth month running and at a solid pace.

With new business and backlogs of work falling, firms also scaled back workforce numbers, noted the report.

This will alarm the ECB's policymakers, who are now likely to cut interest rates by 50 basis points in December.

The economy is deteriorating more broadly now, and the ECB will judge that hastening the pace of its interest rate cuts is needed to help businesses and consumers.

This development would have a negative impact on the Euro, particularly against the Dollar and Pound, where interest rates are set to remain elevated for longer.

Source: Poundsterlinglive

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ACY

Economic

Commodity

Energy

Global energy markets remain on edge as geopolitical risks, particularly stemming from the ongoing conflict between Russia and Ukraine, inject significant uncertainty into supply and demand dynamics. A recent focal point has been Ukraine's reported deployment of advanced missiles, escalating fears about potential threats to critical Russian energy infrastructure. These developments amplify concerns about retaliatory actions that could disrupt supply chains, not only in Europe but across the global energy network.

Natural Gas: A Market on Edge

Natural gas markets have exhibited pronounced sensitivity, with Europe experiencing a sharp uptick in prices as fears of supply disruptions mount. The already-tense situation was exacerbated by Gazprom's move to halt supplies to certain European operators, a decision that underscores the fragility of energy diplomacy in the region. Despite this, Russian pipeline flows through Ukraine have thus far remained stable, providing a precarious sense of normalcy.

Geopolitical Fault Lines: Uneven Ripples Across Global Energy Markets_1

European gas storage, a critical buffer against supply shocks, has seen a dip below 90% capacity, falling slightly behind the five-year average. This marks a notable shift, as earlier in the season, storage levels were considered robust. The narrowing price differentials between Asian and European liquefied natural gas (LNG) are also reshaping trade flows. With European buyers potentially outbidding Asian markets, the region could see a stronger influx of LNG shipments, especially as winter demand intensifies.

Speculative trading has further compounded market volatility. Investor activity in European natural gas futures has surged, reflecting heightened anxiety over supply risks and the perception that current storage levels may prove inadequate in the event of prolonged disruptions.

This speculative bullishness highlights a broader market expectation of elevated volatility throughout the winter season.

Crude Oil with Mixed Signals

Crude oil markets, in contrast, have exhibited a more measured response to geopolitical tensions. Prices have shown resilience, with offsetting factors tempering significant volatility. U.S. weekly inventory data revealed a marginal build in commercial stockpiles, primarily driven by increased imports. Exports, however, have also risen, suggesting robust international demand.

Geopolitical Fault Lines: Uneven Ripples Across Global Energy Markets_2

Notably, gasoline markets have shown weakness, with a decline in demand contributing to a rise in inventories despite reduced refinery activity. This signals potential softness in consumer-driven fuel consumption, possibly linked to broader economic concerns or seasonal variations.

LNG Trade Dynamics: Asia vs. Europe

The interplay between Asian and European LNG markets remains a critical factor shaping global energy flows. With price differentials narrowing, European buyers are increasingly positioned to secure additional LNG cargoes. However, this comes with its own set of challenges. Asian demand, particularly from China, is expected to recover as the country continues to ease pandemic-related restrictions and stimulate economic activity. This could reignite competition for LNG, potentially driving prices higher and adding further strain to European energy security.

Gold and Safe-Haven Dynamics

Amid this turbulence, gold has emerged as a standout performer, attracting safe-haven investment. Geopolitical instability and supply chain vulnerabilities have boosted demand, pushing prices to multi-month highs. This trend underscores the broader market sentiment, where uncertainty continues to favour assets perceived as stable in times of crisis.

Geopolitical Fault Lines: Uneven Ripples Across Global Energy Markets_3

The Path Ahead: Persistent Volatility

As geopolitical risks continue to evolve, energy markets are likely to remain volatile, with natural gas markets particularly exposed to sudden shifts. The delicate balance of European storage, LNG trade flows, and the potential for further disruptions underscores the precarious nature of the current energy landscape. Crude oil, while comparatively stable, may also face renewed pressure if broader geopolitical or economic factors disrupt the fragile equilibrium.

In this high-stakes environment, policy decisions, market interventions, and geopolitical developments will play pivotal roles in determining the trajectory of global energy markets. Stakeholders across industries should remain vigilant, as the interplay of regional dynamics and global trends ensures that uncertainty will remain the defining characteristic of the energy sector in the months ahead.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Warren Takunda

Economic

British business output shrank for the first time in more than a year and tax increases in the new government's first budget hit hiring and investment plans, a survey showed, a fresh setback for Prime Minister Keir Starmer's push for economic growth.

The preliminary S&P Global Flash Composite Purchasing Managers' Index, published on Friday, fell to 49.9 in November - below the 50.0 no-change level for the first time in 13 months - from 51.8 in October.

"The first survey on the health of the economy after the budget makes for gloomy reading," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

Employers cut staffing levels for a second month in a row - with manufacturers reducing headcount at the fastest pace since February - as they turned more pessimistic about the outlook.

The survey's measure of overall new business was the weakest since last November.

A weaker outlook for the global economy weighed on companies with the automotive sector in a slump. But the first moves of Britain's Labour government were also a cause for concern.

"Companies are giving a clear 'thumbs down' to the policies announced in the budget, especially the planned increase in employers' National Insurance Contributions," Williamson said.

Finance minister Rachel Reeves raised the rate of social security contributions paid by employers and lowered the threshold at which companies must pay them as she sought to raise more money to fund public services.

Many employers have said the budget changes fly in the face of the pledge by Reeves and Starmer to turn Britain into the fastest-growing Group of Seven economy.

Momentum was already weak with gross domestic product edging up by only 0.1% in the July-to-September period, according to official data published last week.

Figures on Thursday showed government borrowing shot past forecasts in October, underscoring how reliant Reeves is likely to be on an improvement in economic growth to generate the tax revenues needed to fund more spending on public services.

Friday's survey found firms were not replacing departing staff as they braced for April's rise in payroll costs.

Williamson said the survey suggested the economy was contracting at a quarterly 0.1% pace but the hit to confidence hinted at worse to come, including further job losses.

Selling prices rose at the slowest rate since the coronavirus pandemic but high rates of growth in input prices and costs related to wages were hurting the service sector.

That could worry some interest rate-setters at the Bank of England which is watching prices in the service sector closely.

Inflation also jumped by more than expected last month, showing why the central bank is moving cautiously on interest rate cuts.

The business activity index for the dominant services sector fell to a 13-month low of 50.0 from 52.0 in October. The manufacturing index slid to 48.6, its lowest in nine months, from 49.9 in October.

Source: Reuters

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UBS

Economic

Energy

Three main components: steel, concrete and cooling equipment make up 70% of the total embodied carbon of the building.

Datum Datacentres operates a network of environmentally efficient, carrier neutral data centers. Below is a snapshot of what the company is doing to assess the emissions in the production and construction phase of its new datacenter as part of its environmental management plan.

Background

The whole life cycle emissions of a building consist of operational and embodied carbon emissions. Operational emissions are the emissions associated with the ongoing use of a building, whilst embodied carbon emissions are those associated with the construction, maintenance and demolition of buildings.

Typically, around one third of a building’s total emissions are created before they are used, in the upfront construction stage. Building material choice is critical in assessing the embodied carbon of a building, as materials have varying levels of carbon intensity.

Actions

Datum has two sites: one in Farnborough and one in Manchester. Datum is constructing a brand new data center on its Manchester site, bringing vital investment into the Wythenshawe area.

As part of Datum’s environmental management plan, an embodied carbon assessment was commissioned, to assess the emissions in the production and construction phase.

Outcomes

The embodied carbon study found that 42% of emissions are from the superstructure, 18% from building services and 18% from internal finishes. The superstructure contributes the majority of emissions due to the structural steel frame. Three main components: steel, concrete and services (including cooling equipment), contribute just 23.7% of the total building mass, but make up 69.3% of total embodied carbon of the building.

The suspended ceiling had a very high carbon intensity. Aluminum was the most carbon intense material. Other materials and components that had a higher carbon impact were the windows and doors, insulation, paint, carpet and flooring. The services associated with the project are also carbon intense, mainly due to the cooling equipment required for data centers.

As part of Datum’s carbon management strategy, the team will explore whether the design of future buildouts can be optimized to reduce the carbon impact of the construction phase.

To stay updated on all economic events of today, please check out our Economic calendar

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