US trade policy uncertainty affects regional growth forecasts, with the US economy expected to outpace the Euro area. China faces weaker growth due to low business and consumer sentiment, while US tariffs may be mitigated by policy support.
Disinflation trends are seen in the US and Euro area, with the UK experiencing a rebound. Central banks are on different paths, and the German election could influence fiscal policies.
Geopolitical and tariff uncertainties dominate as Trump hits the ground running, Swiss Re forcasts. Beinsure analyzed the report and highlighted the key points.
Swiss Re Institute forecast global real GDP growth at 2.8% in 2025 and 2.7% in 2026, roughly in line with 2024. However, the distribution of risks is tilted to the downside, driven by geopolitical risk, the potential for disruptive policy changes, and financial market vulnerabilities.
We forecast global CPI inflation to decline slowly to an average 3.3% in 2025 and 3% in 2026, from 5.1% in 2024.
In response, a cautious US Federal Reserve will likely proceed with only three interest rate cuts in 2025, while central banks in the euro area and China ease policy faster as economic growth concerns dominate.
However, fiscal risks may add upside pressure to long-dated bond yields in the West. The economic slowdown and geopolitical uncertainty are affecting the primary insurance industry’s outlook, according to World Insurance Industry report.
Regional forecast overview
Key takeaways
- US growth outperformance is set to persist despite higher protectionism. Increasing trade tensions will continue to constrain already-weak growth prospects in Europe and China.
- US inflation pressures may prove stubborn as a result of the new administration’s policies. Euro area disinflation is broadly on track, with risks skewed to the downside (see 2025 Europe Insurance Market Rates).
- Swiss Re expecs the Fed to slow the pace of rate cuts; the ECB’s cutting cycle remains on track. We largely maintain our existing long-dated bond yield forecasts.
Swiss Re Institute key forecasts for 2025 and 2026
| 2025 | 2026 | 2025 | 2026 | ||
| Key forecast (in %) | Swiss Re Institute | Swiss Re Institute | Consensus | Consensus | |
| Real GDP Growth | |||||
| World | 2.7 | 2.6 | 2.9 | 2.8 | |
| US | 2.2 | 2.1 | 2.2 | 2.0 | |
| Euro area | 0.9 | 1.1 | 1.0 | 1.2 | |
| China | 4.6 | 4.1 | 4.5 | 4.2 | |
| CPI | |||||
| World | 3.4 | 3.1 | 4.2 | 3.5 | |
| US | 2.5 | 2.4 | 2.6 | 2.5 | |
| Euro area | 2.0 | 2.0 | 2.1 | 1.9 | |
| China | 0.9 | 1.5 | 0.8 | 1.2 | |
| CB Policy Rate | |||||
| US | 3.9 | 3.4 | 3.8 | 3.5 | |
| Euro area | 1.8 | 1.8 | 2.0 | 2.0 | |
| China | 1.1 | 1.0 | |||
| 10y. Gov. Bond Yield | |||||
| US | 4.2 | 4.2 | 4.3 | 4.2 | |
| Euro area | 2.4 | 2.6 | 2.3 | 2.3 | |
| China | 1.9 | 2.1 | 1.7 | 1.8 | |
Note: IMF used for world GDP and CPI consensus; GDP growth is based on the FX-weighted aggregation method.
For the Euro area, the policy rate used is the ECB’s depo rate.
US Growth to Outperform, but Tariffs Pose Risks
The US economy remains strong, with steady job growth and falling unemployment. The impact of protectionist policies will likely materialize in the second half of the year. Despite this, 2025 GDP growth should remain above the long-term potential, which we estimate at 1.9%.
Our baseline assumes broad US tariff hikes on China and selective reciprocal measures from other countries. Retaliation poses a bigger threat to US growth than inflation.
China’s 2025 growth forecast remains at 4.6%, supported by policy measures expected to be announced at the upcoming National People’s Congress.
In Europe, the recovery remains sluggish amid trade tensions and structural challenges. The German election will influence fiscal policy, but in 2025, monetary easing will primarily depend on the European Central Bank (see 2025 US Insurance Rates Trends).
US non-farm payrolls, Net Change, 3m MA
Economic policy uncertainty
Inflation: Disinflation Path Remains Uncertain
US CPI inflation rose to 3% year-over-year in January, surpassing expectations. January data tends to be volatile, so we maintain our 2.5% forecast for 2025, with the broader disinflation trend expected to continue.
Inflation risks remain, driven by rising expectations, tariffs, and potential wage growth from tighter labor markets due to immigration policy changes.
Euro area inflation has also ticked up, but this largely reflects energy base effects rather than underlying price pressure. If excess Chinese supply shifts to Europe due to trade restrictions, combined with a weaker CNY, European CPI could face downward pressure. Given weak demand, we lower China’s CPI inflation forecast by 0.2 percentage points (see 2025 UK Insurance Market Rates).
Interest Rates: US Monetary Policy Adjustment May Be Delayed
We still expect two US rate cuts in 2025, but they may come later in the year due to inflation uncertainty. In the euro area, we anticipate 125 basis points in cuts in 2025 as weak growth and slowing inflation drive policy decisions.
The UK rate outlook is less clear, as inflation remains elevated while growth weakens. Bond yields face upside risks, particularly in Europe, where fiscal concerns remain a factor. Japan stands out as the only major economy expected to raise rates in 2025.
Monetary policy outlook ahead
Change in developed market yields per driver
US economic outperformance is likely to continue, but global risks lean to the downside. An escalation in trade disputes would be more damaging to growth than inflation.
Diverging central bank policies may become more pronounced as regional economic trends and inflation rates vary.
Key Economic Risks for 2025
Geopolitical Risks
Geopolitical tensions remain the biggest macroeconomic threat. A full-scale global trade war, while not our base case, poses the most significant downside risk to growth. The US administration has taken a more aggressive stance on trade and international relations, potentially deepening regional divisions.
Expectations for a ceasefire in Ukraine have increased since Trump’s return, particularly in the past week. A resolution could lower gas prices in Europe, boosting consumer spending and industrial output. Reconstruction may create investment opportunities but could also strain public finances. The stability of the Israel-Hamas ceasefire remains uncertain, especially after Trump’s recent comments on Gaza.
Fiscal Risks
US Treasury Secretary Bessent aims to cap the fiscal deficit at 3% annually. However, the US debt-to-GDP ratio is likely to rise, with investors demanding higher Treasury yields. In the UK, weaker growth raises concerns about fiscal sustainability, especially with an inflationary budget. France’s political instability adds to fiscal uncertainty, though the recent Budget approval offers temporary relief. Germany faces lower fiscal risks due to greater budgetary flexibility.
Labour Market Risks
Stricter US immigration policies may slow labor supply growth, tightening the job market and pushing wages higher. However, wage growth could remain limited if labor demand weakens significantly. Labor market volatility will continue to challenge policymakers.
Political Risks
Unexpected government changes, such as those in France and Canada, could create economic uncertainty and financial market volatility. In Europe, policy instability and public unrest remain key concerns. The rise of AfD in Germany is increasing political polarization and pressuring the CDU to take a harder stance on migration ahead of the February 23 election. Minority parties could obstruct fiscal reforms.
Monetary Policy Risks
Uncertainty surrounding US fiscal and trade policy complicates efforts to balance inflation control with economic stability. Political interference in Federal Reserve decisions, as threatened by Trump, presents an inflationary risk. While inflation remains a concern, the Fed is unlikely to raise rates.
In Europe, steady quantitative tightening is helping normalize money markets but could increase long-term risk-free rate volatility, particularly if government bond supply shocks emerge. Diverging interest rate policies across central banks may drive further financial market fluctuations, especially through currency markets.
Insolvency and Debt Refinancing Risks
Business insolvencies are expected to slow in 2025. Although lower interest rates will not fully resolve refinancing challenges, they should ease corporate borrowing conditions. Debt markets appear strong enough to handle upcoming refinancing needs, with funding costs falling last year after global rate cuts. However, speculative-grade debt is rising, increasing from 12% of 2025 maturities to 40% by 2028.
Upside Risks to Growth
Stronger-than-expected global growth could stem from productivity gains driven by AI and other technologies, increased fiscal spending, conflict resolutions in Ukraine and the Middle East, and a rebound in China’s economy. The German elections may also lead to fiscal expansion and structural reforms, potentially benefiting the broader euro area economy.
FAQ
US trade tensions are expected to slow growth in Europe and China, while the US economy remains resilient. Tariff hikes on Chinese goods could reduce trade activity, but policy measures may soften the impact.
Global CPI inflation is projected to decline to 3.3% in 2025 from 5.1% in 2024. US inflation remains uncertain due to tariffs and labor market changes, while Euro area disinflation is progressing with downside risks.
The US Federal Reserve is expected to cut interest rates three times in 2025. The European Central Bank and China’s central bank are likely to ease policy at a faster pace due to growth concerns.
Geopolitical tensions, trade disputes, fiscal instability, and financial market volatility pose significant risks. The US administration’s policies and potential political shifts in Europe may further influence economic conditions.
The German elections could affect fiscal policy, influencing spending and structural reforms. Depending on the outcome, there may be fiscal loosening, which could have spillover effects on the broader Euro area.
Stricter US immigration policies may reduce labor supply, potentially increasing wage growth. However, weaker labor demand could limit wage increases. Labor market volatility will remain a challenge for policymakers.
Stronger global growth could result from AI-driven productivity gains, higher fiscal spending, conflict resolutions, and a rebound in China’s economy. These factors could provide unexpected economic support in 2025.
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AUTHORS: Charlotte Mueller – Chief Economist Europe, Loïc Lanci – Economist, Swiss Re Institute, Gioele Giussani – Swiss Re Institute
