Global GDP Themes and Forecasts

Investor uncertainty weighed on global financial markets over the first half of this year. Trade-related risks remain and could restrain global growth. Despite some concrete developments—trade agreements with the UK and other countries and inroads in China trade negotiations—much more needs to be defined before investors are reassured there is resilient economic growth ahead, in our view. In the meantime, we believe the Federal Reserve (Fed) is likely to resume trimming its policy rate.

USA & CANADA

OUTLOOK FOR US EARNINGS FAVORABLE; CANADA RELIANT ON FISCAL POLICY TO PLAY SUPPORTING ROLE 

• In the second quarter, strong fundamentals came through in aggregate once again and drove strong risk appetite across US credit and equity markets.
• We could see 8% earnings growth this year, but 12% in 2026 is likely too optimistic in our view. With that said, a 7%-8% growth rate would not derail the positive fundamental story for markets in aggregate. 
• The Canadian economy has been weakening so far this year after a robust 2024 recovery.
• Rising trade tensions with the US have led to declining industry/consumer confidence.
• Fiscal policy will play an important role in supporting the economy and we believe the Bank of Canada has room to cut rates further.

LATIN AMERICA

FISCAL POLICIES AND ELECTIONS IN THE NEWS

• While growth in Mexico has been weak, there has been better-than-expected news on tariffs and fiscal policy. With inflation relatively benign, we expect the central bank to continue easing.
• In Brazil, growth is trending lower and inflation is coming off the boil after a fiscally driven crisis late last year. While the central bank has signaled an extended pause at very restrictive levels, we think rate cuts could be on the table later this year.
• Pivotal elections will take place in Chile later this year and in Colombia next year. In general, we see the continent shifting to the right.

UNITED KINGDOM

CONTINUED MONETARY EASING LIKELY

• The Bank of England 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

STRATEGIC POLICIES COULD HELP ATTRACT CAPITAL BACK TO EUROPE 

• The European Union (EU) and Germany have pivoted to a fiscal expansion to tackle the issue of underinvestment.
• Although US tariffs on EU exports pose a risk to growth, European policies could be expansive and strategic to attract capital back to Europe.
• The European Central Bank is likely at the end of easing cycle though it still has room to maneuver.

CHINA

EXPORT SECTOR COULD WEIGH ON GROWTH IN SECOND HALF

• Despite resilient export data, China’s growth faces increasing headwinds. Export front-loading and consumer subsidies are fading, which should weigh on exports in the second half.
• Domestic demand remains weak amid sluggish income growth, deflation and falling confidence.
• While retail sales were supported by subsidies, we think the boost will wane by fourth quarter.
• The housing market continues to deteriorate, with sales plunging more than 50%.
• We expect China’s growth to slow to below 4.5% in the second half.

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

MIXED RESULTS ACROSS DIVERSE COUNTRY GROUP

• Seasonality and the persistence of orthodoxy continued to help Turkish reserves and disinflation. 
• South Africa’s reserve bank shifted to a de facto 3% inflation target, with the upcoming Medium-Term Budget Policy Statement potentially delivering constructive fiscal news.
• Growth has been mostly weak in Central and Eastern Europe, with a surprisingly strong print in Poland and to a lesser extent in Romania.
• Domestic demand and services helped the Polish economy expand 3.4% year over year in the second quarter. Growth in Romania was partly driven by a positive fiscal impulse, which could turn negative through the end of the year as the focus turns to fiscal consolidation.
• Growth in Saudi Arabia, the largest economy in the Gulf Cooperation Council, remained strong (3.9% year over year) in the second quarter supported by both oil and non-oil spending.

JAPAN

FRAGMENTED POLITICS AND FISCAL EXPANSION LOOMS

• In July, the US imposed a 15% tariff on Japanese goods entering the US. The deal avoided a reciprocal tariff of 25%.
• After the ruling coalition’s Upper House loss, the opposition’s call for a consumption tax cut stoked fiscal risks and yen weakness. Prime Minister Ishiba’s refusal to resign has somewhat eased near-term market concerns.
• The Bank of Japan will most likely remain cautious and avoid hiking again before next year.

ASIA PACIFIC

EXPORTS SLOW DOWN TO WEIGH ON GROWTH

• Growth is expected to slow down in the second half after the first half’s export front-loading.
• Exports from North Asia are likely to hold up better than those from Southeast Asia countries since the secular trend in the semiconductor industry remains intact.
• While the headline reciprocal tariff may be settled for most countries, sectoral tariffs, details around potential exemptions and rules around trans-shipment still need to be ironed out.
• We think a Fed rate cut is likely to open the door for some regional central banks to follow through given downside pressure on growth and well-behaved inflation.

Disclosure

Views as of September 4, 2025. This blog post 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. 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. Descriptions assume normal market conditions. Numbers are approximate.

Market conditions are extremely fluid and change frequently.

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