Global Economic Outlook Late 2025: Slowing Growth, But No Recession in Sight

Economic

Summary:

While the global economy is not in recession, major economies such as the US and China are experiencing significant slowdowns....

United States: Waning Momentum Amid Labor Strains and Tariff Tensions

Despite some strong quarters, the US economy is losing steam in the second half of 2025. The Federal Reserve is caught between persistent inflation fueled in part by President Trump's aggressive tariff policies and weakening job creation. The Personal Consumption Expenditures (PCE) index rose to 2.9% in August, up from 2.3% in April, keeping inflation above the Fed’s target.

However, job growth has slumped, with only around 15,000 jobs added monthly from June to August down sharply from the 100,000 monthly average in previous periods. Unemployment rose to 4.3% in August, the highest since the COVID-19 pandemic. Tighter immigration controls have disrupted key sectors like manufacturing and agriculture, where immigrant labor is essential. As a result, some firms have cut back production or closed operations entirely.

In Q1 2025, GDP contracted 0.5% due to a rush in imports aimed at avoiding incoming tariffs. In Q2, a sharp drop in imports helped push GDP growth to 3.8%. But signs point to another downturn in Q3, as PMI remains below 50 and imports start rising again. The full-year GDP growth forecast for the US is now 1.6%, down significantly from 2.8% in 2024.

European Union: Stable But Sluggish

The EU economy has shown resilience in the face of global instability and US trade tensions. Eurozone GDP is expected to grow 0.5% in Q3, slightly above Q2's 0.4% and avoiding contraction. Inflation has been kept in check, holding close to the European Central Bank’s 2% target, allowing the ECB to cut interest rates four times this year, from 2.9% to 2.15% by early June.

Thanks to this monetary support, the EU’s full-year GDP forecast for 2025 has been upgraded from 1.0% to 1.2%, although the pace remains far below pre-pandemic norms.

China: Deflation and Structural Headwinds Persist

China is facing a complex set of internal and external problems. Deflationary pressures continue, with August consumer prices falling 0.4% year-on-year. Manufacturing PMI has been below 50 since April, indicating ongoing contraction. The real estate sector remains weak, and small private enterprises struggle with sluggish demand and limited financing.

Trade disputes with the US remain unresolved, further dampening investor and export confidence. GDP growth in Q3 is projected at 4.5%, a slowdown from the 5.3% rate recorded in the first half of 2025.

Emerging Markets: Growth Under Pressure but Still Resilient

Developing economies such as Brazil, India, Vietnam, Indonesia, and Mexico are facing heavy impacts from ongoing US tariffs. Still, robust domestic consumption and supportive government policies have helped them stay among the fastest-growing economies.

Despite external pressures, these countries continue to outperform in relative terms, highlighting the growing importance of internal demand and diversification away from traditional export markets.

Risks and Implications for Vietnam

Global trade headwinds remain a significant concern heading into Q4 2025. The US’s tariff policies, particularly under the Trump administration, are the main source of uncertainty for the global economy. Slower trade growth and weakened industrial output in major economies are expected to weigh on global GDP growth for the rest of the year.

For Vietnam, a cautious and adaptive policy stance is vital. Suggested measures include continued trade negotiations with the US, stronger support for exporters, expanding into non-US markets, and targeted support for SMEs and unemployed workers to cushion external shocks.

The global economy in late 2025 continues to grapple with policy uncertainty, trade disruptions, and uneven growth patterns. While a full-blown recession is not expected this year, the slowdown is real, and risks remain elevated. Countries that adopt agile, balanced policies like Vietnam will be better positioned to weather the challenges ahead.

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

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