S&P Global analysts argued that it is uncertainty itself—rather than policy outcomes—that is holding back growth. Despite these headwinds, Q2 data in many economies exceeded expectations, aided by healthy corporate and household balance sheets and near full employment. Services spending remains robust, and survey-based sentiment has begun to align with activity data as purchasing managers’ indices, European investor confidence, and US manufacturing sentiment all improved in August, S&P Global said in its latest outlook titled, ‘Global Economic Outlook Q4 2025: Global Resilience Battles US Policy Unpredictability.’
A key concern has emerged in the US, where job creation has slowed sharply. Over the past three months, net job gains averaged just 22,000 per month compared with 123,000 earlier in the year. Healthcare remains the only sector adding jobs, while manufacturing and federal government employment have contracted. Unemployment, however, remains close to longer-run estimates of stability.
Global oil prices have fallen due to oversupply, with OPEC+ output increases compounding the decline. While Chinese restocking has temporarily cushioned prices, demand support from lower energy costs is expected to benefit households and industries, especially in emerging markets.
Meanwhile, a surge in data centre construction linked to the US–China AI race has driven non-residential investment growth to 8 per cent annualised in H1, contributing 1 percentage point to US GDP growth. Though long-term productivity effects of AI remain uncertain, near-term spending on infrastructure, equipment, and power capacity is providing a notable boost.
Asset markets have also provided support. Global equities are near record highs after a strong earnings season, while housing markets show mixed signals as higher borrowing costs weigh on affordability.
US inflation remains elevated, with August core CPI at 3.1 per cent and services inflation near 4 per cent. Producer prices rose 2.8 per cent. In response to softer labour data, the Federal Reserve cut rates by 25 basis points to 4–4.25 per cent in September, balancing employment risks against tariff-driven inflation.
Other central banks are treading cautiously. The European Central Bank (ECB) and Bank of England held policy rates steady, while Australia and Canada trimmed rates earlier this year. Emerging market central banks, supported by stronger currencies and falling oil prices, have cut more aggressively. The US dollar has weakened 4 per cent since the November 2024 election, with sharper declines against the euro and yen but relative strength versus the Indian rupee.
Global GDP growth is now expected to exceed 3 per cent in 2025 following stronger Q2 performance. The US forecast has been raised by 20 basis points, the eurozone by 30, and China by 30, with upgrades also for Japan and Mexico. Canada is the lone downgrade due to tariff impacts. For 2026, forecasts are broadly unchanged except for a modest US uplift to 1.8 per cent.
In the US, defence spending and tech investment support activity, though weaker immigration and labour market softness weigh on momentum, with Fed funds rates expected at 3.6 per cent by end-2025 and 3.1 per cent by late 2026. The eurozone recovery is aided by rate cuts and German fiscal stimulus, with GDP set to rise above potential by mid-2026 despite subdued consumer confidence.
In Asia-Pacific, China’s growth is forecast to slow to 4 per cent in H2 2025–2026 amid weak exports and tepid domestic demand, though resilient demand elsewhere in the region and further rate cuts provide some cushion. Emerging markets benefit from firm domestic demand and a weaker US dollar, which offset softer trade flows as tariff frontloading fades.
The chief risk remains a sharper US labour market downturn leading to recession, with spillovers to trade partners and global finance. Another risk lies in higher global interest rates, which could destabilise debt dynamics given elevated public and corporate leverage.
On the upside, sustained lower oil prices could boost global consumption, particularly in energy-intensive emerging economies. Accelerated data centre expansion also offers potential near-term growth and productivity gains, though risks of an overbuild remain.
While cyclical resilience is evident, analysts caution that growth will remain constrained until the US shifts towards a steadier policy environment. Abrupt tariff and industrial policy moves have disrupted confidence. A sustained period of low policy uncertainty—backed by tax and regulatory reforms—could set the stage for healthier long-term growth. Without this, the drag on global output is likely to persist, added the outlook.
ALCHEMPro News Desk (SG)
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