Global Economy Faces Turbulent Start to 2025 as Consumers and Trade Tensions Weigh on Growth

The world's largest economy, the US, is expected to show a lackluster performance in the first quarter of 2025, with an initial estimate projecting a 0.4% annualized growth rate, the weakest in nearly three years. This comes after a comfortable ride throughout most of last year, but consumer fatigue and a ballooning trade deficit have taken their toll on the economy.

Consumers and Businesses Show Signs of Caution

The job market remains strong, with no signs of widespread layoffs, although the hiring pace has cooled slightly. The closely watched monthly employment report is forecast to show a 130,000 increase in payrolls, about 100,000 less than the larger-than-expected March gain. The unemployment rate is projected to remain at 4.2%. However, consumers are becoming increasingly cautious due to concerns about job security, leading to a slowdown in purchases.

Trade Tensions and Tariffs Weigh Heavily on Growth

The trade deficit has been exacerbated by the scramble for imports ahead of the Trump administration's tariff surge announced in April 2025. Businesses have front-loaded goods imports to avoid higher prices, while consumers are also rushing to buy goods that may face tariffs in the future. This has put pressure on policymakers to implement stimulus measures and address the growing trade deficit.

GDP Data and Industry Performance

The GDP report on Wednesday will provide a snapshot of the economy's performance during this period. Business investment in equipment, largely commercial aircraft, is expected to be a bright spot in the report. However, companies have become increasingly guarded about spending due to uncertainty over tariffs, trade deals, and tax policy.

Global Economic Outlook and Policy Decisions

The global economic outlook remains uncertain, with many countries facing challenges related to trade tensions and economic growth. The European Central Bank (ECB) is expected to maintain its accommodative monetary policy, while the Federal Reserve is likely to keep interest rates unchanged at its May meeting. In Asia, China's economy is facing pressure due to tariffs and a slowdown in industrial production.

Regional Highlights

• Canada: Canadians will vote on Monday in a consequential election that will determine who will lead them through the trade war with the US. The Liberal Party's Mark Carney has promised swift trade negotiations with Trump and deficit spending to strengthen Canada's economy.
• Asia: China releases figures showing industrial profits rising from last year, but tariffs are expected to weigh heavily on exports. Australia's consumer inflation is forecast to have cooled slightly in the first quarter, while South Korea's CPI may support a rate cut.
• Europe: Euro-area GDP and inflation numbers will be in focus, with data due Friday showing that the ECB's task of restoring 2% inflation is almost complete. Consumer-price growth probably slowed to 2.1%, while an underlying measure predicted to have ticked up to 2.5%.
• Latin America: Brazil reports a central bank survey of economists, government debt totals, current account, foreign direct investment, and nominal and primary budget balance data, all of which will take a back seat to the central bank's monetary policy meeting.

Conclusion

The global economy is facing a challenging start to 2025, with consumers and trade tensions weighing on growth. While the job market remains strong, businesses are becoming increasingly cautious about spending due to uncertainty over tariffs, trade deals, and tax policy. Policymakers will need to address these challenges and implement stimulus measures to support economic growth.