Global Economy to Struggle in 2025, US the 'Bright Spot': Strategist

The global economy is expected to face challenges in 2025, with geopolitical tensions, trade disputes, and fiscal pressures weighing on growth. However, the United States is projected to be a 'bright spot' in the global economic landscape, outpacing other major economies. This article explores the factors contributing to the US economy's resilience and the regional disparities that may impact global economic stability.

Geopolitical tensions and trade disputes are expected to slow global economic growth in 2025, with the OECD projecting a slowdown to 3.3% from 3.5% in 2024. The US, however, is forecast to outperform, with GDP growth of 2.5% (Goldman Sachs Research). Rising tariffs and immigration restrictions in the US could slow growth, but strong consumer spending and business investment are expected to offset these impacts.



The US economy's resilience in 2025 is attributed to its strong labor market, robust productivity growth, and a surge in available labor. These supply-side factors have driven real GDP growth and falling inflation, despite restrictive monetary policy. The US has benefited from a tight labor market, with unemployment rates expected to remain low, and productivity growth accelerating to 1.7% annually since late 2019. In contrast, the euro area's productivity growth has decelerated to 0.2% over the same period.



The US economy's labor market dynamics have been a key driver of its resilience. Unlike other regions, the US has experienced accelerating economic growth and full employment without significant inflationary pressures, even under restrictive monetary policy. This is largely due to supply-side forces, such as a surge in labor productivity and available labor, which have allowed the US to maintain strong growth and falling inflation. However, emerging policy risks, such as trade tariffs and stricter immigration policies, may offset these gains and cool US real GDP growth to around 2% in 2025.

US fiscal and monetary policies have contributed to its economic resilience compared to other regions. The US has benefited from strong consumer spending, supported by a range of influences including fiscal impetus and a tight labor market. The Republican sweep of Congress and the White House is likely to bring an extension of the 2017 Tax Cuts and Jobs Act, provisions of which would otherwise expire in 2026. However, this is unlikely to prompt additional fiscal fuel since this extension will maintain the status quo. The change in power in Washington and anticipation of hawkish trade policy is likely to weigh on the consumer spending engine as the years carries on, Morgan Stanley economists predict, as the impact of taxes on imported goods, such as clothing, automobiles and steel starts to show up in real prices. The US Federal Reserve is expected to continue to cut the funds rate down to a terminal rate of 3.25-3.5%, which would be 100 basis points higher than in the last cycle. This is because our economists expect the Federal Open Market Committee to continue nudging up its estimate of the neutral rate and non-monetary policy tailwinds — in particular, large fiscal deficits and resilient risk sentiment — are offsetting the impact of higher interest rates when it comes to demand.

Regional disparities in economic performance, like the US being a 'bright spot', can significantly impact global economic stability. The US, with its strong consumer spending and robust labor market, is expected to outperform other major economies in 2025. This disparity can lead to divergent monetary policies, with the US Federal Reserve potentially tightening while other central banks ease. This could result in currency fluctuations and trade imbalances, affecting global economic stability. Additionally, regional disparities can exacerbate geopolitical tensions, as seen in the US-China trade conflict. To mitigate these risks, policymakers should focus on fostering global cooperation and addressing structural issues that hinder convergence, such as inequality and lack of investment in emerging markets.

In conclusion, the global economy is expected to face challenges in 2025, with geopolitical tensions, trade disputes, and fiscal pressures weighing on growth. However, the US is projected to be a 'bright spot' in the global economic landscape, outpacing other major economies. The US economy's resilience is attributed to its strong labor market, robust productivity growth, and a surge in available labor. Regional disparities in economic performance can significantly impact global economic stability, and policymakers should focus on fostering global cooperation and addressing structural issues to mitigate these risks.