News and events

05.19.2025

KEEPING OPTIONS OPEN

Our expectation: US economy slow down this year, EA growth baseline unchanged, China's GDP growth decelerate.



We continue to expect the US economy to slow down this year; however, we have lowered the projected likelihood of it entering a recession to 25-30% from 45%, while also characterizing the risks surrounding our growth baseline as skewed to the upside. Solid incoming data, unclear causality between soft and hard data, still ample liquid wealth, and easing trade tensions should reduce the risk that the projected slowdown this year deteriorates into a contraction.


In the EA, our growth baseline remains unchanged. We continue to expect sequential growth to slow down between Q2 and Q3. Lingering trade tensions are likely to weigh on activity via net trade and investment.


In China, we continue to expect GDP growth to decelerate this year, as high tariffs are likely to be only partially offset by further fiscal stimulus. However, we now forecast annual growth to slow down in 2025 to 4.7%, a less severe deceleration than previously expected (4.2%) amid US/China de-escalation efforts.


April’s data showed no signs of upward pressure on US inflation. However, we anticipate that tariffs could begin to impact prices in the coming months, reaching their peak over the summer. The easing of US-China tensions was a welcome relief. Nevertheless, the trade-weighted effective tariff rate for the US remains elevated at 14%, compared to 2.5% last year. As a result, we still expect a temporary rise in goods inflation, though we now project a more moderate impact. The annual average for core CPI for 2025 now stands at 3.0% (compared to 3.2% in the previous baseline).


In the EA, core inflation for April rose more than expected, driven by services, but a sustained reacceleration is unlikely. Meanwhile, several signals continue to point to a consolidation of the disinflation trend. 
Accordingly, our baseline forecast that core inflation will continue to decline towards target by December 2025 remains unchanged.


In China, entrenched deflationary pressures kept inflation subdued in April, while persistent overcapacity contributed to a further decline in producer prices. 


Monetary policy wise, we continue to expect the Fed to cut rates twice this year. The risks surrounding our call are that the Fed may cut only once in Q4. For the ECB, we expect three additional rate cuts by the end of the year, though we do not rule out the possibility that the ECB could cut more aggressively if growth and inflation deteriorate further vis-à-vis our baseline. Finally, for the PBoC, we now anticipate 20 basis points in policy rate cuts later this year (vs 40bp previously), but no further RRR cuts before the summer (vs 50bp previously).​



FABIO FOIS
Head of Investment Research & Advisory 

MATTEO GALLONE 
Junior Macroeconomist 

VALERIO CEOLONI 
Senior EM/FX Strategist 


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