2025 Global Macroeconomic Outlook
Third Quarter
Global Fixed Income team’s view as of June 3, 2025.
Global Economy: Tariff Uncertainties Hinder Growth Outlooks
U.S. Growth Is Likely to Slow
We believe economic pressures from tariffs, still-high interest rates and persistent above-target inflation will slow the U.S. economy over the next several months. We remain concerned about mounting consumer headwinds, including rising auto loan and credit card delinquencies, and sagging consumer sentiment.
However, recent tariff de-escalations and the potential for a more expansionary fiscal package than we initially anticipated may alleviate some economic risks. Furthermore, President Donald Trump’s policies on deregulation, onshoring and taxes may eventually take hold, boosting optimism and generating positive economic momentum in late 2025.
Eurozone Growth Economy Remains Weak
We expect economic weakness to persist in the eurozone, where industrial output and domestic demand in Germany and France, the region’s largest economies, remain sluggish. More broadly, U.S. tariffs represent a significant challenge for the export-heavy economy. Uncertainty about trade negotiations has dampened investment and consumption, leaving European economies vulnerable to downturns. The U.K. faces similar challenges, as weak consumer sentiment and business investment, still-high interest rates and onerous fiscal policies weigh on growth. While the U.S. and U.K. have reached a limited trade deal, U.K. domestic issues remain the primary challenge.
Tariff Truce with U.S. Lifts China’s Outlook
The recent temporary tariff truce between the U.S. and China has helped lift China’s growth prospects modestly for the year. However, China is unlikely to reach its official annual growth target of 5%. Structural headwinds, including weak private investment, lackluster consumer sentiment and ongoing property sector struggles, limit the economy’s potential, in our view.
Furthermore, we expect export growth to remain soft as the risk of renewed trade tensions stifles business confidence. We expect the officials to provide targeted fiscal support and gradual monetary easing. Elsewhere, emerging markets (EM) economic outlooks remain mixed, depending on the impact of tariffs, trade, politics and fiscal and monetary policies.
Inflation: Pricing Pressures Broadly Moderate
U.S. Inflation Inches Closer to Fed Target
While we await the outcome of ongoing trade negotiations, annual inflation rates have slowly moderated. For example, headline Consumer Price Index (CPI) eased from 3% in January to 2.3% in April, while core CPI slowed from 3.3% to 2.8%. Meanwhile, the core Personal Consumption Expenditures price index, the Fed’s preferred measure, moderated to 2.5% in April, half a point higher than the Fed’s target.
However, with tariffs imminent, we believe these near-term trends may stall. Depending on their magnitude and timing, tariffs could reignite goods inflation. Rising shipping costs and deglobalization initiatives also remain potential drivers of goods inflation. Meanwhile, the services component (housing and rent) of inflation remains elevated but continues to slow.
Eurozone Inflation Cools
Global trade tensions and softening consumer demand have created an uncertain backdrop for eurozone businesses. This uncertainty has helped fuel a downshift in European inflation, which recently slowed to a below-target annual pace of 1.9%. Weaker inflation figures make additional central bank rate cuts likely. Meanwhile, the annual rate of U.K. inflation has moved in the opposite direction, soaring to 3.5% in April versus 2.6% in March. Higher costs for energy, water and transportation drove the jump.
Additionally, facing a nearly 7% hike in the national minimum wage and higher employer insurance contributions, many businesses have been forced to raise prices. Given this backdrop, U.K. inflation likely will remain elevated in the near term, stifling expectations for rate cuts.
Deflation Persists in China
Despite the Chinese government’s ongoing efforts to boost economic growth, falling consumer prices have persisted in 2025. Domestically, weak demand and consumption, high unemployment and the lingering property sector slump have led to falling consumer prices in 2025. Trade tensions with the U.S. are exacerbating the problem, as the nation’s exports have slowed since the tariff conflict commenced.
We expect deflationary pressures to persist unless the government can restore domestic demand and maintain solid growth as tariffs and trade policies take shape. Meanwhile, inflation risks are mounting in other EM countries amid currency weakness, volatile commodity prices and tariff policy uncertainty.
Monetary Policy: Central Banks Pursue Different Paths
Fed Extends Rate-Cut Timetable
Although Fed officials worry that tariffs and trade policy uncertainty pose a risk to U.S. economic growth, employment and inflation, they remain patient. After cutting rates three times in late 2024, policymakers shifted to a wait-and-see mode, even as growth and inflation have slowed.
We expect the Fed to remain on hold through the summer, awaiting greater clarity on trade policy and tariff effects. While we appreciate the Fed’s strategy, we believe slowing economic growth will ultimately drive monetary policy. Accordingly, we expect Fed rate cuts to resume later this year.
Inflation Outlooks Drive European, U.K. Monetary Policies
Although eurozone inflation has slowed sharply in 2025, the European Central Bank (ECB) has pursued a much more aggressive easing campaign than its peers. Fearing trade disputes and tariffs may pressure prices in the near term, ECB officials recently cut rates for the eighth time in 12 months. And we believe another rate cut is likely later in 2025.
Meanwhile, the U.K. has experienced a recent inflation surge primarily driven by fiscal policy expansion. Nevertheless, the Bank of England (BoE) will likely look past the inflation data and continue cutting rates amid faltering economic growth. Elsewhere, concerns about tariffs and global growth stalled the Bank of Japan’s tightening campaign, even as inflation remained elevated.
China Seeks to Bolster Growth
The People’s Bank of China recently cut a key lending rate to a record-low level, seeking to jumpstart the nation’s sluggish economy. Additionally, officials hope the easing move will defend against mounting trade tensions with the U.S. Elsewhere, country-specific inflation dynamics and political risks have led to diverging central bank strategies.
Interest Rates: Macro Uncertainties Keep Most Yields Rangebound
U.S. Yields Are Unlikely to Breach Recent Ranges
Yields on U.S. government securities remain among the highest in the developed markets. We expect the 10-year Treasury yield to largely stay between 4% and 4.5% amid uncertainties surrounding tariffs and fiscal policies, inflation, and economic growth. Ultimately, as weaker growth triggers additional Fed rate cuts, we believe the yield curve will normalize as shorter-term rates decline.
Looking further out, dovish Fed policy and the potential positive effects of President Trump’s tax and deregulation policies may encourage firmer growth and additional curve steepening.
Fiscal Policy Is Key to Yields in Non-U.S. Developed Markets
While the ECB has been easing, German fiscal expansion and its potential effects on other European economies may keep yields elevated. Alternatively, in the U.K., slowing growth and labor market data have kept the BoE in an easing cycle. Unlike Germany, though, the U.K. has limited fiscal space, and the BoE and financial markets have already accounted for the U.K.’s recent fiscal expansion. We continue to expect the U.K. to outperform other global rate markets.
EM Rates May Continue to Rally
EM disinflation, which allowed an earlier start to EM easing cycles, has progressed without reaccelerating, unlike concerns in the U.S. and other core markets. Overall, we think EM rates markets are in a comfortable position and may continue to rally. Expectations for weaker global growth may open output gaps and reduce inflation pressures. Additionally, China may end up exporting some of its excess capacity to other emerging markets.
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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.