Big Picture: Monthly Outlook

The global cyclical momentum is regaining traction The global cyclical momentum is regaining traction. Looser global monetary policy should provide a tailwind for economic activity, enabling a moderate cyclical recovery in the course of 2025.

Capital markets are anticipating a relatively benign macroeconomic scenario at a time of unprecedented uncertainty about macroeconomic policies. The Trump administration’s future economic policy agenda is uncertain and contradictory at times. In Europe, the eurozone’s loss of competitiveness seems to have completely escaped the attention of national governments.

Meanwhile, China has shown that it is already content not to allow deflationary pressures to build up. The disinflation process appears to have run its course in the US. Barring a major external shock or a US recession, which is not our current baseline scenario, we expect the Fed to be done cutting rates sooner rather than later.

Economies around the globe

US

The prospects for reflationary policies under the new president, with higher growth and inflation, reduce the scope for further monetary policy easing. Given the solid economic outlook and sticky inflation, we expect the Fed to keep the federal funds target rate unchanged at 4.5% throughout 2025.

Eurozone

Inflation continues to ease on the back of weak demand and rising economic slack. Given the increased economic headwinds, we expect the ECB to cut rates at each meeting until July 2025, bringing the deposit rate to 1.75%.

UK

The recovery is losing steam, but a fiscal boost should support growth and keep inflation higher, prompting the Bank of England to cut rates at a slower pace than peers. Productivity-related issues and tax hikes on employment point to growth risks in the medium term.

Japan

Given the uncertain sustainability of the recovery and inflation remaining near target, further Bank of Japan policy tightening is likely to remain cautious. Political uncertainty has increased since the elections brought in a minority government.

China

Growth momentum is showing signs of stabilising following the policy pivot. However, more policy support is needed to address weak demand and deflationary pressures.

Switzerland

With continued disinflation pressures, the Swiss National Bank cut its policy rate by 50bps in December. We view this larger cut as a front-loading of rate cuts and expect a final cut of 25bps in March 2025, bringing the policy rate to 0.25%.