What's Happening?
Morgan Stanley's midyear economic outlook for 2025 forecasts a widespread deceleration in global growth, with the U.S. experiencing stable inflation rates. The report indicates that global growth will slow to an annual rate of 2.9% in 2025, influenced by U.S. trade policies and higher tariffs. Despite the global slowdown, U.S. inflation is expected to peak between 3% and 3.5% in the third quarter of 2025, driven by tariff-related cost increases. The Federal Reserve is likely to maintain interest rates steady until March 2026, focusing on inflation containment over employment.
AD
Why It's Important?
The forecasted stability in U.S. inflation amid global economic deceleration is crucial for maintaining economic resilience. Stable inflation rates can support consumer spending and business investment, which are vital for economic growth. However, the report highlights the potential risks associated with trade policies and tariffs, which could impact U.S. economic performance and global trade dynamics. The findings underscore the need for careful policy management to balance inflation control with growth objectives.
What's Next?
Morgan Stanley suggests that central banks may consider interest rate cuts in response to lower growth and inflation, except in the U.S., where rates are expected to remain steady. The report indicates that ongoing trade negotiations and policy adjustments will be critical in shaping future economic conditions. Policymakers will need to address the challenges posed by tariffs and trade barriers to ensure sustainable growth.
Beyond the Headlines
The report highlights the broader implications of U.S. trade policies on global economic structures, suggesting that higher tariffs can create structural shocks and uncertainty. It also points to the importance of government spending in supporting economic resilience, with potential increases in public deficits as countries invest in infrastructure and defense.
