Economic commentary

October 22, 2025

Resilience as US-China tensions resurface

By NAB Group Economics

We have revised upwards our global growth forecasts, highlighting the resilience in the global economy. We now expect global growth of 3.3% in 2025 (previously 3.2%) and 3.0% in 2026 (from 2.9%) and 2027 (unchanged). Growth at these levels is still relatively subdued but substantially better than was expected following ‘Liberation Day’ in April (when we projected global growth of 2.7% for 2025 and 2.8% for 2026).

A bring forward of activity ahead of US tariff increases helped sustain activity earlier this year but this is now fading. Policy support has also been evident, including from Chinese authorities in the first half of the year and through monetary policy easing. Support has also come from investment in AI – it has been a particular driver in US business investment – supporting global manufacturing production.

For the US, while Q3 growth is on track for a solid outcome we expect a near term slowdown as slowing real income gains constrain consumption and as trade and other policy uncertainty remains a drag. The government shutdown will also weigh on Q4 growth. However, fiscal easing by Congress, Fed rate cuts and growing AI investment should support the economy in 2026. While business investment has been strong, jobs growth is very weak – how these conflicting signals of business sector intentions are resolved represents a major uncertainty for the outlook.

For China, the upwards growth revision reflects a stronger than expected Q3 quarterly growth rate and additional policy supports. That said, indicators of domestic demand are weak with growth being sustained by industrial production amidst resilient export growth. The reliance on trade for growth, in a world of increasing trade barriers, remains a risk for the outlook. Other challenges include the domestic supply-demand imbalance, which is causing deflationary pressure, and the ongoing housing market downturn.

The risk of extreme trade disruptions re-emerged this month, with the US and China announcing further export controls and the US threatening an additional 100% tariff on Chinese imports. Our forecasts assume that this tariff increase does not occur.

The margin of error around the economic forecasts remains higher than normal. Apart from the ongoing trade risks, many countries still have large budget deficits, leaving fiscal policy room constrained. Upside risks come from the AI roll-out and potential productivity benefits from this investment, as well as any investment delayed by the major policy uncertainty this year being reinstated as businesses adapt. 

For further details please see the NAB Forward View - Global (October 2025) (PDF, 1MB)