As we enter Q4, the global economy continues to show resilience, but signs of slowing momentum are becoming increasingly evident across developed and emerging markets. Following a relatively strong first half of the year, the second half has brought softer growth data, persistent inflation in certain segments, and renewed volatility in financial markets. Investors and policymakers alike are navigating a landscape shaped by high interest rates, geopolitical uncertainty, and structural shifts in trade and technology.
Slower but Stable Growth
Economic growth in 2025 is decelerating from the post-pandemic rebound and mid-2020s expansion. The U.S. economy, which led much of the global recovery in recent years, is cooling. Third-quarter GDP growth estimates suggest an annualized pace of around 1.8%, down from 2.8% in 2024. Consumer spending remains the primary engine, supported by a still-solid labor market and rising real wages. However, higher borrowing costs and slowing corporate investment are starting to weigh on activity.
Inflation and Monetary Policy
Global inflation continues to trend downward but remains above central bank targets in many economies. In the U.S., headline inflation has declined to 2.6%, while core inflation remains sticky at 2.9%, driven by persistent price pressures in housing, services, and imported goods. The Federal Reserve’s decision to cut interest rates by 25 basis points in September was driven primarily by emerging signs of softening in the U.S. labor market, combined with a cautious outlook on growth and a gradual easing of inflation pressures. Markets and futures data suggest that two more 25 basis point cuts are currently priced in for the remainder of 2025, though highly dependent on inflation, wage trends, and growth surprises.
Market Conditions
Financial markets are caught between optimism over falling inflation and caution over slowing growth and policy uncertainty. Equity markets have had a volatile year. U.S. stocks are broadly higher in 2025, led by gains in large-cap tech and AI-linked companies, though breadth remains narrow. Valuations are elevated, and corporate earnings expectations are modest, especially in cyclical sectors.
Bond markets have been relatively stable, with yields peaking in mid-2025 and slowly retreating. Credit spreads remain tight, though there is growing concern about refinancing risk among lower-rated borrowers if growth continues to weaken. Commodities are mixed—oil prices have stabilized around $85/barrel, while industrial metals face demand headwinds from China’s slowdown.
Outlook
Among key indicators worth watching in the coming months are:
- Inflation surprises (especially in services or import-sensitive goods)
- Wage growth and labor dynamics (which feed inflation persistence)
- Trade-policy signals (tariff announcements, negotiations, retaliation risks)
- Central bank statements and dovish/hawkish pivoting
- Investment and business confidence surveys (PMIs, CapEx plans)
- Global growth datapoints, particularly in China, Europe, and emerging markets
Looking ahead to late 2025 and into 2026, the global economy faces a delicate balancing act. A soft landing remains possible but depends on continued disinflation, stable labor markets, and no major policy or geopolitical shocks. Risks include renewed inflation spikes, fiscal strain, or an escalation in trade tensions. Upside scenarios include trade de-escalation, stronger-than-expected reforms or stimulus in key economies, or positive structural breakthroughs (e.g., accelerating productivity gains). For markets, selectivity, quality, and diversification will be key as investors adjust to a world of slower growth, tighter liquidity, and shifting global dynamics.