Schroders Investment: How will the global economy evolve under the Trump era?

According to the Zhitong Finance APP, David Rees, Head of Global Economic Research at Schroders, along with strategist Tina Fong, senior economist George Brown, and economist Irene Lauro, published an analysis indicating that the first 100 days of Donald Trump's presidency will be filled with various voices, as the new government will gradually push forward on key policy objectives. However, early signs align with Schroders' fundamental assumption that major economic policies will be more moderate than those promised during Trump's campaign, paving the way for robust global economic growth of 2.5% and 2.8% in 2025 and 2026, respectively. The contrast between the U.S. exceptionalism and weaker economic growth in other regions suggests that global divergence is likely to continue into 2025.

Schroders states that the U.S. will continue to lead the global economy. Consumer spending continues to exceed expectations, coupled with a robust labor market, and stable real wage growth is expected to drive demand in the near future. The GDP growth rate for 2025 could reach 2.5%, with 2.7% in 2026, showing strong performance, although this growth may lead to rising inflation.

In fact, following the shocking inflation data released in January, the core Consumer Price Index (CPI) for 2025 and 2026 is expected to remain around 3%. Concerns about inflation trends arise as the economy continues to operate beyond capacity. The upward revision of global inflation forecasts strengthens the view that central banks have limited room for further easing of policies. The Federal Reserve may continue to pause interest rate hikes in the coming months to assess the impact of Trump's policies, but it is still expected that the Fed will begin raising rates again in 2026.

In the Eurozone, as the political clouds begin to dissipate and looser financial conditions drive economic activity recovery, economic growth in the region should improve. Consumption is expected to dominate growth, while fixed asset investment will still contribute relatively little to economic growth in 2025. However, inflation remains a concerning issue, as wage growth continues to exceed general expectations, which may keep inflation elevated. Therefore, interest rates are unlikely to decline significantly as widely anticipated. The European Central Bank is expected to cut rates only twice more, by 25 basis points each time, keeping the deposit rate at 2.25% in 2025.

Supply-side constraints in the UK limit the potential for faster growth, suggesting that the region is also facing stagflation. Inflation is expected to rise above 3% later in 2025 and exceed the 2% target throughout the forecast period, significantly limiting the Bank of England's room for monetary policy easing. In fact, even though Governor Bailey has stated that the Bank of England's Monetary Policy Committee will act cautiously, it is still expected that rates will only decrease by 25 basis points to 4.25% in May.

In other major emerging markets, declining inflation and interest rate cuts have clarified the outlook for the Indian economy. Growth is expected to accelerate starting mid-2025. China's recovery momentum is beginning to emerge, but it may not become more apparent until later in 2025.

Due to the uncertainty surrounding U.S. policies, the risks to forecasts remain unusually high. In a scenario where Trump adopts aggressive policies, such as imposing high trade tariffs and mass deportations of illegal immigrants, stagflation in the U.S. could occur and potentially push other regions of the world into recession At the same time, concerns about rising U.S. Treasury yields may expose the fiscal weaknesses of other weaker sovereign nations, such as the United Kingdom.

However, upward risks are also emerging. DeepSeek may accelerate the application of artificial intelligence, and macroeconomic reforms have returned to the government agenda eager for growth. Bank loans are also showing signs of recovery. A significant drop in oil prices may alleviate inflationary pressures later in 2025. A robust global economic environment should benefit the stock market and promote the development of stock markets in multiple regions throughout the year