Home Economy Global economic outlook: mixed signals beyond the United States

Global economic outlook: mixed signals beyond the United States

Jared Franz, Economist at Capital Group, analyzes global economic prospects

Jared Franz, Economista di Capital Group
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As inflation cools and central banks around the world cut interest rates, the global economic outlook remains uncertain. The United States and India continue to drive growth, while Europe and China struggle to revitalize their economies.

According to the International Monetary Fund (IMF), the US GDP is expected to grow by 2.2% in 2025, supported by a strong labor market, rising corporate earnings, and increased business investments. This projection offsets downward revisions for major European economies, while China faces a real estate downturn and heightened trade tensions following Trump’s election victory.

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The US economy defies the traditional cycle

Rather than following the typical four-phase economic cycle, the US seems to be transitioning from a late-cycle phase back to a mid-cycle one, avoiding a recession. This stage is typically characterized by rising corporate profits, growing credit demand, easing cost pressures, and a neutral monetary policy—a historically favorable environment for equity markets.

Europe and China: struggles and recovery attempts

Outside the US, divergence is significant. India continues its rapid expansion, benefiting from a post-pandemic shift in global supply chains, boosting its production of smartphones, appliances, and pharmaceuticals. Europe, however, fluctuates between growth and contraction, burdened by high energy prices, the Ukraine war, and close ties to China’s slowing economy. The European Central Bank (ECB) has already begun cutting interest rates ahead of the Federal Reserve (Fed), hoping to stimulate growth.

In China, the government has launched a major stimulus program to counter a prolonged real estate slump and weakening industrial production. However, increased tariffs on Chinese imports, announced by the new Trump administration, add to economic uncertainty.

Investing in a rate-cutting cycle

Leading central banksthe Fed, ECB, and People’s Bank of China—are cutting interest rates, fueling hopes of economic expansion. Historically, three of the last seven Fed easing cycles occurred outside of a recession, with the S&P 500 posting an average gain of 27.9% from the first to the last rate cut. This suggests that rate cuts in a growing economy can be a boon for US equity investors.

How do you see the markets evolving in the coming months? Share your thoughts in the comments below!

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