Global economic outlook for 2025
In this commentary Mohamed A. El-Erian, provides an analysis of the global economic outlook for 2025. The main points are:
Economic Outlook
- The U.S. economy continues to outperform other major economies and is expected to maintain this trend in 2025.
- Europe is experiencing a deepening malaise, with low growth and large budget deficits.
- China is struggling with the threat of “Japanification,” facing unfavorable demographics, debt overhang, and a prolonged property-market downturn.
- Stock markets remained relatively stable and delivered high returns, with the S&P index reaching nearly 60 record-high closes.
Monetary Policy and Financial Markets
- The U.S. Federal Reserve did not deliver the expected interest rate cuts and signaled fewer cuts for 2025.
- The baseline scenario for the U.S. includes somewhat lower immediate growth but continued outperformance compared to peers.
- Inflation is expected to remain sticky, presenting a challenge for the Federal Reserve.
- Yields on U.S. ten-year government bonds are projected to edge higher, trading mostly in the 4.75-5% range.
Global Economic Trends
- Economic fragmentation is expected to continue, with some countries diversifying their reserves away from the U.S. dollar and exploring alternatives to Western payment systems.
- The range of possible economic outcomes has widened due to increased downside risks and potential upside innovations in areas such as artificial intelligence and life sciences.
Mohamed A. El-Erian emphasizes the importance of regularly testing baseline scenarios against actual developments, given the wider dispersion of possible economic outcomes in 2025.
A Baseline Scenario for the Global Economy in 2025
By: Mohamed A. El-Erian – University of Cambridge
How accurate are professional forecasts?
In this commentary Gascon and Martorana examine how likely is that the economy in 2025 will be in line with professional forecasts. The outlook, so far, for 2025 U.S. real GDP growth is expected to be 2.1%, comparatively stronger than forecasters have predicted in recent years, though it represents a slight slowing of activity. They found:
Historical forecast performance (1993-2024)
Actual values fell within the forecast range 44% to 56% of the time, depending on the indicator. The Mean Absolute Forecast Error (MAFE) for GDP growth is 1 percentage point. There is a slight bias in 10-year Treasury yield forecasts, typically overshooting by 40 basis points.
For the 2025 forecasts
- Based on historical performance, there’s roughly a 50% chance that actual 2025 values will fall within the forecasted ranges.
- If GDP growth forecasts are incorrect, the actual value is likely to be within 1 percentage point of the prediction (1.1% to 3.1%).
- Forecasters have consistently underestimated economic resilience in recent years, with 2024 GDP growth expected to be 2.7% compared to earlier predictions of 1.3%.
Professional Forecasters’ Past Performance and the 2025 Economic Outlook
Author: Charles S. Gascon, Joseph Martorana – Federal Reserve Bank of St. Louis
