Global GDP Themes and Forecasts

As the saying goes, “the only constant is change,” and ongoing tariff policy wildcards are serving to validate this adage. Undefined trade implications continue to hang over the global economy. Even with some deals and tariff pauses, the world faces a major step up in tariff rates. It may take time to work through the system, but trade disruption is already weighing on the outlook for corporate profitability. We believe the trend of consensus expectations for profit growth and initial jobless claims are key indicators to watch.

In our view, the risk of global trade seizing up and causing widespread recession is greatly diminished. However, key court rulings and tariff deadlines lie ahead. Countries could forge new trade relationships with the US in the meantime, which would likely be viewed favorably by financial markets.

USA & CANADA

PROFIT ESTIMATES FOR 2025 STILL POSITIVE, BUT SLIPPING 

• Rising US government debt, repeated debt ceiling confrontations and failure to address long-term imbalances contributed to Moody’s downgrade of US Treasury debt. In a budget-related development, a tax and reconciliation bill passed in the House of Representatives in a close vote.
• Given the significance of profitability in our economic outlook, we are closely tracking earnings projections. To date, S&P 500 profit estimates for 2025 have been slipping as economic growth cools. Expectations suggest a 7.0% growth rate, which we believe is achievable.
• In Canada, Mark Carney and the Liberals won the national election at the end of April.
• Carney’s initial focus will likely be on trade negotiations with the US. We believe there will be an agreement that scales down tariffs—perhaps not back to the pre-Trump tariff regime, but lower than current levels. In such a scenario, we would expect Canadian assets to rally.

LATIN AMERICA

REGION COULD BENEFIT IN A WEAK US DOLLAR ENVIRONMENT

• In our view, slowing global growth, lower oil prices and US dollar depreciation should benefit Latin American local bonds. Some of the real rates (rates net of inflation) in the region were very high at the end of May.
• A weaker US dollar could create more space for central banks to ease policy. There is the possibility of a virtuous cycle of rate cuts, capital inflows, higher growth, lower inflation and foreign exchange appreciation.

UNITED KINGDOM

BETTER TRADE RELATIONS AND BOE PIVOT SUPPORT GROWTH OUTLOOK

• The Bank of England (BOE) is expected to continue its monetary easing cycle given recent soft economic data and easing price pressures.
• We believe positive news on US-UK and UK-EU trade relations are likely to benefit the UK as it operates from a low base of previous Brexit trade policies. These trade developments should support economic growth together with pro-growth fiscal policy.

EURO AREA

STRUCTURE OF EURO ZONE ECONOMY EVOLVING

• In Europe, manufacturing PMIs showed early signs of recovery, and confidence in future output started to build after Germany’s fiscal pivot. Inflation is cooling off as wage pressures soften and tariff-related downside risks appear to be easing. The euro zone’s labor market was solid, with a historically low unemployment rate. However, job vacancies and employment growth have been declining.
• The investment policy actions being pursued in Germany and, to a degree, more broadly in the euro area, have been significant and are likely to be expanded over time. They will likely bring about a secular turn in growth and the restructuring of the European economy.

CHINA

US-CHINA TRADE TALKS YIELD SURPRISE

• Mid-May negotiations resulted in the effective US tariff on China to be reduced to approximately 40%, returning to more manageable, non-prohibitive levels. We view the deal as a tactical retreat by the US rather than a concession by China.
• The 90-day suspension window could prompt further frontloading of shipments and production and further alleviate tariff-related drags on China’s growth.
• We see trade developments as dampening prospects for additional stimulus by China. Beijing is likely to revert to a wait-and-see approach.

CENTRAL AND EASTERN EUROPE, MIDDLE EAST, AND AFRICA (CEEMA)

ELECTION OUTCOMES AND POLICYMAKING

• Romanian voters shocked markets when the center-right and pro-euro-zone candidate defeated his opponent. This development should improve prospects for a fiscal consolidation package.
• In Poland, the populist right wing candidate won the presidential election in a blow to the ruling coalition. The president retains veto power, which may stall fiscal consolidation and judicial reform.
• Turkey’s turn toward orthodox policymaking has proven robust thus far to domestic political headlines, as positive seasonality on external accounts helps incrementally.
• South Africa’s Government of National Unity (GNU) continues to hold, as evidenced by the passage of the budget and an ultimately successful visit by “Team South Africa” to Washington. We remain constructive on the outlook for local fixed income.

JAPAN

TRADE UNCERTAINTY PERSISTS

• Trade negotiations between Japan and the US have not yielded progress, leaving the market to speculate about potential outcomes.
• In its May meeting, the Bank of Japan left its overnight call rate at 0.5%. The bank cited high uncertainties surrounding Japan’s economic activity and prices, including the evolving trade situation.

ASIA PACIFIC

CURRENCIES RALLY

• The Taiwanese dollar (TWD) rallied on a confluence of factors: rumor of a trade deal, strong equity inflows, increasing currency hedging from life insurers and a less-forceful central bank presence in the foreign exchange market.
• TWD’s outsized gain spurred a rally in Asia FX, especially among low-yielding currencies, led by the Malaysian ringgit, Singapore dollar and South Korean won.
• On a less favorable note, the surge in the TWD contributed to the rating agency Fitch putting five Taiwanese insurers under review for potential downgrades. It cited the potential for currency mismatches between holdings versus required payouts.

Disclosure

Views as of 5 June 2025. This marketing communication is provided for informational use only and should not be considered investment advice. The forecasted views and opinions expressed reflect those of the Loomis Sayles Macro Strategies Group and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. All statements are made as of the date indicated and are subject to change at any time without notice. Descriptions assume normal market conditions. Numbers are approximate.

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Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.

Market conditions are extremely fluid and change frequently.

This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. Information, including that obtained from outside sources, is believed to be correct, but Loomis Sayles cannot guarantee its accuracy. This material cannot be copied, reproduced or redistributed without authorization. This information is subject to change at any time without notice.