Rising Trade Tensions and Growing Uncertainty Threaten Global Economy

The global economy faces growing uncertainty as the U.S. and Eurozone show signs of slowdown, while China intensifies efforts to revive weak domestic demand.

Key takeaways

• The U.S. and Eurozone economies are showing clear signs of slowing, raising fears of a potential recession.
• China is ramping up stimulus to boost weak domestic consumption, but recovery remains uneven.
• Global growth prospects hinge on policy responses, with rising trade tensions adding to uncertainty.

These divergent dynamics are reshaping global growth prospects and could have far-reaching implications for trade and financial markets.

US Outlook: Policy on Hold Amid Rising Risks

The U.S. The Federal Reserve has kept its benchmark interest rate unchanged at 4.25 — 4.50% amid growing signs of economic deceleration, including slowing job growth, rising delinquency rates, and weakening consumer spending. 

The Fed also reduced its pace of quantitative tightening, signaling a more cautious approach to monetary policy. 

Despite sticky core inflation now forecast at 2.8% for 2025 the central bank still anticipates two rate cuts next year. Analysts at Krungsri Research expect the first cut as early as mid-2025, with rates projected to end the year between 3.50–3.75%. 

A sharp drop in the services PMI and a downshift in GDP forecasts underscore the fragility of the U.S. recovery.

Eurozone: Fragile Recovery Amid Trade War Fears

In Europe, the economic picture remains bleak. Inflation is easing, with headline CPI at 2.3% and core inflation at its lowest in nearly three years.

However, European Central Bank (ECB) President Christine Lagarde has warned that rising global trade tensions could shave 0.3–0.5% off Eurozone GDP while adding upward pressure on prices. Sluggish services activity, weak consumer confidence, and limited investment continue to weigh on the recovery. 

Although Germany’s new EUR 500 billion stimulus plan may support its own economy, the broader Eurozone impact will be limited in the near term. The ECB is expected to cut its key deposit rate to 2.00% by year-end, albeit cautiously.

China: Turning Inward to Reignite Growth

Facing external headwinds and tepid domestic demand, China is preparing new stimulus measures to revive private consumption, a cornerstone of its post-COVID growth strategy. 

Retail sales and consumer confidence remain well below pre-pandemic levels, prompting banks to slash consumer loan rates and the government to offer income support and trade-in subsidies. 

While exports have shown recent strength posting 14% growth in February trade tensions threaten future momentum. 

Authorities are now prioritizing internal demand, aiming to meet the 2025 GDP growth target of 5%, though a full consumption recovery may take longer.

As the U.S. and Europe teeter on the edge of recession and China navigates its own structural rebalancing, the global economy faces a delicate balancing act. 

The coming months will be pivotal in determining whether policy responses can contain the risks or whether the world is headed for a broader slowdown.