Economic Commentary

December 19, 2025

Ending 2025 on a positive note.

By Group Economics

• A feature of the second half of 2025 has been forecast upgrades, and again this month we raise our global growth estimate (by 0.1ppts in 2025 and 2026). Growth in 2025 is tracking a bit above its 2024 pace despite the large shock to global trade and sentiment from US tariff increases. Tariffs reached their peak in April (‘Liberation Day’ and subsequent China-US tariff escalation) and while there was some subsequent pull back, US tariffs now in place are substantial and higher than our forecast assumption in December 2024.
• Around half of the forecast revision to 2025 global growth between December 2024 and this month is due to India. Western Europe (Euro-zone, UK) are also tracking higher; India/Western Europe, as well as Japan, are the main reason why 2025 growth is set to exceed 2024. Growth in China and non-Japan/China East Asia is tracking close to its 2024 level, but this is a better than expected outcome given their exposure to US tariffs.
• India’s strong performance this year reflects favourable monsoon conditions, which has supported agricultural production and, by lowering food prices, boosted real incomes. Domestic policy support has also assisted. Globally, the investment in AI has also been a factor - this has driven US business investment this year, which is heavily reliant on imports, particularly from Asia - as has exporters’ ability to adjust and re-direct trade.
• Concerns around the growth outlook saw a shift to more supportive policy settings this year. While fiscal support was mixed it was evident in China, particularly in H1. There was also a decline in central bank policy rates across advanced and emerging economies. Japan is an outlier but even here concerns over the global outlook saw the BoJ on an extended pause, which we expect will end this week with a rate increase of 25bps.
• A divergence between growth and labour market outcomes also contributed to central bank easing in some countries, such as the UK and the US where policy rates were made less restrictive even with still elevated inflation. The Fed cut rates by 25bp last week and we expect the Bank of England to do the same this week. We expect further cuts next year, but for the Fed we do not expect these to occur until mid-2026 onwards.
• We still see growth global slowing next year (to 3.1%), largely due to lower growth in India (as growth normalises) and China. China activity data have been very weak in recent months, with only exports and, relatedly, industrial production holding up. Authorities are signalling only modest further policy supports (for now) but the likelihood that they will set a growth target close to 5% means there is upside risk to our 2026 China forecast.

For further details, please refer to the attached document (PDF, 1MB).

Economic Commentary