Take two: OECD and Federal Reserve lower growth outlooks on tariff and policy concerns
- 24 March 2025 (3 min read)
What do you need to know?
The Federal Reserve (Fed) revised its growth and inflation outlook while keeping interest rates on hold, at 4.25%-4.50%, at its latest policy meeting. It now forecasts US economic growth of 1.7% this year, down from an earlier forecast of 2.1%, and expects inflation to rise to 2.7%, from its previous estimate of 2.5%. Fed Chair Jerome Powell cautioned that tariffs would likely impact growth and complicate efforts to stabilise inflation. We expect the Fed to delay interest rate cuts to the end of 2025, then cut to 3.50% in successive quarters in 2026. Elsewhere, both the Bank of Japan (BoJ) and Bank of England also opted to hold rates steady.
Around the world
The Organisation for Economic Co-operation and Development (OECD) now expects the global economy to grow 3.1% this year and 3.0% in 2026. This is down from its previous forecast of 3.3% expansion for both years, and 3.2% growth in 2024. The downward revision is partly due to higher trade barriers in several countries, inflation concerns, and increased policy uncertainty weighing on investment and household spending. The OECD expects US GDP growth to slow to 2.2% this year and 1.6% in 2026. In addition, it expects the Eurozone to grow 1.0% and 1.2% in 2025 and 2026 respectively. AXA IM expects global growth of 3.2% in 2025 and 2.9% in 2026.
Figure in focus: 2.3%
Eurozone annual inflation cooled to 2.3% in February, from 2.5% in January and down from the 2.4% initially estimated. The data strengthens expectations that the European Central Bank will continue its interest rate cutting cycle. Meanwhile, core inflation, which excludes more volatile food, energy, alcohol and tobacco, fell slightly to 2.6% from 2.7% previously. In contrast, Canada’s annual inflation rate jumped to 2.6% in February – an eight-month high – exceeding expectations of 2.2%, and up from 1.9% in January. The jump was chiefly attributed to the end of a sales tax break in February.
Words of wisdom
Savings and Investments Union: A new initiative aimed at channelling the €10trn of bank deposit savings held by European citizens into investments, helping people invest for the future via better access to capital markets while improving financing options for companies. Around 70% of household savings in the European Union are currently held in deposit accounts, which usually earn less money than investments in capital markets, the European Commission (EC) said. The scheme, announced by EC President Ursula von der Leyen last week, intends to help grow individuals’ wealth and improve financial literacy while boosting European economic growth and competitiveness.
What's coming up?
On Monday flash Purchasing Managers’ Indices covering March are reported for the Eurozone, UK, US and Japan. The BoJ publishes the minutes of its latest monetary policy meeting on Tuesday. The UK issues its latest inflation data on Wednesday when the UK government also publishes its spring economic statement. The US and UK deliver their final estimates for fourth quarter (Q4) GDP growth on Thursday and Friday respectively.
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