2025 Global Macroeconomic Outlook
Fourth Quarter
Global Fixed Income team’s view as of September 8, 2025.
Global Economy: Growth Continues at Various Rates
U.S. Economy Appears Resilient Amid Labor Market Shifts
We expect U.S. economic growth to persist, despite the market’s recent focus on a labor market slowdown. In our view, a lower level of job creation doesn’t necessarily foreshadow a weaker economy. With immigration slowing and the unemployment rate remaining fairly steady and healthy, we believe a natural balance is returning to the labor market.
Additionally, tariffs have had little effect on the economy’s trajectory so far. Nevertheless, we remain mindful of several pending trade agreements with key partners and the potential economic impacts of these tariffs.
Looking into 2026, we expect business and consumer incentives outlined in 2025’s tax and spending bill to support economic gains.
Growth in Europe May Continue at a Lackluster Pace
Near-term growth in the eurozone will likely persist but at a sluggish pace, weighed down by weaker global demand and uncertainty. Additionally, political turmoil in France and weakening economic fundamentals in Germany provide headwinds to the region’s growth.
The eurozone’s trade agreement with the U.S. has reduced some business risks, but weak export growth may pressure near-term data. Meanwhile, consumers appear reluctant to spend, further straining economic data.
Elsewhere, the U.K.’s economic outlook remains fragile, largely due to fiscal policy concerns and still-high inflation. Rising unemployment and potential tax hikes will likely weigh on consumer sentiment and spending.
U.S.-China Tariff Truce Lifts China’s Outlook
After frontloading exports ahead of U.S. tariffs, China logged a better-than-expected 5.3% growth rate in the first half of 2025. However, this pace of growth doesn’t appear to be sustainable.
In our view, structural headwinds, including weak private investment, lackluster consumer sentiment and ongoing property sector struggles, will likely limit growth. We expect export growth to remain soft amid lingering trade tensions and global uncertainty. Additionally, continuing deflationary pressures may weigh on growth.
Elsewhere, emerging markets (EM) economic outlooks remain mixed, depending on the impact of tariffs, trade, politics, and fiscal and monetary policies.
Inflation: Pricing Pressures Persist
Fiscal Policy Changes May Influence U.S. Inflation
After jumping in June, headline inflation – measured by the Consumer Price Index (CPI) – held steady at 2.7% in July, while core CPI climbed to a five-month high of 3.1%. The Federal Reserve’s (Fed’s) favorite inflation gauge, the core Personal Consumption Expenditures price index, rose to 2.9%, a five-month high.
We continue to observe the trends of elevated but slowly falling services inflation, with slowly rising goods inflation. While tariffs remain a threat to near-term consumer prices, we don’t expect them to represent an ongoing driver of inflation.
Instead, we believe tax and other fiscal policy changes, which take effect next year, may cause inflationary pressures to build through 2026. Additionally, an aggressively easing Fed could add to next year’s inflationary pressures.
Eurozone Inflation Hovers Near Target Rate
Eurozone inflation has remained at or near the central bank’s 2% target for several months, and we expect this trend to continue. Cooling wage growth should help maintain the region’s disinflationary process.
We also expect favorable pricing patterns in the energy market and a stronger euro to keep import costs in check. Additionally, weak growth in the region should also help subdue pricing pressures.
Meanwhile, inflationary pressures are building again in the U.K., where consumer prices recently climbed 3.8% year over year, the highest since January 2024. This rate of inflation, combined with weak overall growth, means the U.K. faces a potential battle with stagflation.
China Faces Ongoing Deflationary Pressures
China’s ongoing efforts to boost economic growth have failed to drive consumer prices higher in 2025. Domestically, weak demand and consumption, high unemployment and the lingering property sector slump have led to falling consumer prices through most of the year.
Trade policy uncertainty with the U.S. is aggravating the problem. We expect deflationary pressures to persist in the near term and a bumpy and slow road to reflation.
Elsewhere, EM disinflation, which triggered an earlier start to cutting cycles among developing markets, remains intact. Unlike the U.S. and other core markets, these countries haven’t experienced reaccelerating inflation and the resulting concerns.
Monetary Policy: Central Banks Remain Data-Dependent
Fed Resumes Easing with Uncertain Outlook
With the Fed shifting its focus to the labor market, policymakers have relaunched their easing campaign. However, the path forward for short-term interest rates remains unclear. We believe current conditions may not require a series of rate cuts.
Economic growth remains solid, the unemployment rate is close to the level characteristic of “full employment,” and inflation is still above target. Moreover, the economy still hasn’t absorbed the effects of pending fiscal policy changes and still-to-be-determined trade agreements.
Cutting rates too quickly or by a large margin could reignite inflation and threaten economic growth. Accordingly, we expect the Fed to resume its wait-and-see approach, examining the prevailing data before making interest rate decisions.
European Central Bank Pursues Cautious Policies
After cutting interest rates eight times since June 2024, the European Central Bank (ECB) is likely near the end of its easing campaign. Inflation remains near the ECB’s target, but policymakers continue to evaluate the effects of tariffs on inflation.
Like the Fed, the ECB will maintain a wait-and-see approach, with one more rate cut by year-end still possible.
Meanwhile, the U.K. has experienced a recent inflation surge driven partly by fiscal policy expansion. Nevertheless, the Bank of England (BoE) will likely seek to boost economic growth with additional rate cuts. However, the timing remains unclear, as the BoE maintains a cautious approach.
China’s Central Bank Holds Rates Steady
After cutting a key lending rate to a record low in May, the People’s Bank of China has remained on hold. However, signs that economic growth is losing momentum may prompt policymakers to act.
Late-summer economic data showed industrial output grew at its slowest pace in eight months, while retail sales grew at the slowest pace since December. The central bank recently noted it would continue implementing and refining a moderately loose monetary policy.
Elsewhere, country-specific inflation dynamics and political risks have led to diverging central bank strategies.
Interest Rates: Central Bank Policies Keep Yields Rangebound
U.S. Yield Curve Shows Signs of Steepening
We expect the yield on the 10-year Treasury note to move between 4% and 5% in the coming months. Fed rate cuts should cause the yield curve to steepen as shorter-term rates decline.
However, if the Fed cuts rates too aggressively, we would expect the 10-year yield to rise, reflecting market fears about financial conditions becoming too loose.
Eventually, dovish Fed policy and the potential positive economic effects of federal tax and deregulation policies may encourage firmer growth and additional curve steepening.
Non-U.S. Yields Continue to Draw Market Attention
Non-U.S. developed market yields appear relatively attractive versus the U.S. We believe bonds in Europe, the U.K., Canada and New Zealand present opportunities for global investors.
In Europe, expansionary fiscal policy and a slowdown in the ECB’s pace of easing have kept yields elevated. The U.K. continues to struggle with limited fiscal space, tepid growth, weak labor and relatively high inflation.
Yields remain relatively high as fiscal concerns persist, particularly among longer-maturity securities. Given weak activity, we expect the BoE to ease policy faster than envisioned and support yields over the medium term.
In Canada and New Zealand, weak labor markets and overall activity will likely foster continued central bank easing and support yields.
EM Interest Rates Reflect Shifting Global Dynamics
With rate-cutting cycles underway for more than a year, most EM rates remain on a downward path. EM disinflation, which allowed an earlier start to easing in many countries, persists, leaving developing markets in a more comfortable position.
We believe EM rates should continue to rally amid expectations that weaker growth will open gaps in output and reduce inflationary pressures.
Meanwhile, China may end up exporting some of its excess capacity to other developing countries.
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International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
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The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.