Global Economic Scenario analysis from Schroders
Economic and policy uncertainty remains elevated.
The Schroders Economic group explore 6 possible economic scenarios for the next quarter.
US economic growth has held up well
Baseline
Summary
We remain relatively optimistic on the global economic outlook and expect growth of 2.5% in 2025 and 2.7% in 2026. Tariffs may be higher than we originally expected, meaning that export-driven economies could face a soft patch. But the US labour market remains in good shape, while evidence of a cyclical pick-up continues to emerge in Europe. Export-driven economies may face a soft patch as trade flows normalise.
Macro impact
Inflation in the US is likely to remain elevated at 2.8% this year and 3.3% next year. In addition to this week’s cut, the Fed is expected to cut rates again in December and keep rates on hold next year. In comparison, we think the ECB and BoE are already at the end of their policy easing cycles.
Higher tariffs
Summary
Despite positive talks this week, trade negotiations with China could still break down meaning that the 145% tariff on goods is reinstated in Q4 of this year. At the same time, the deal with the EU falters before it is signed, while the US imposes more levies on certain sectors. The US effective tariff rate rises much further than in our baseline, while trading partners respond with retaliatory tariffs.
Macro impact
Deflationary: A sharp slowdown in global trade, aggressive cuts in capex and a collapse in confidence result in a global recession. Higher tariffs cause goods inflation to surge, notably in the US, but weaker growth and lower commodity prices eventually pull inflation down. Against this backdrop, the Fed keeps interest rates on hold while central banks elsewhere deliver more easing than our baseline forecast.
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