Morgan Stanley warns of global stagflation risks in the second half of the year: The probability of a recession in the United States rises to 40%, and the Federal Reserve's easing policy is imminent

According to the Zhitong Finance APP, JP Morgan has released a research report forecasting the global macroeconomic outlook for the second half of 2025. JP Morgan pointed out that the performance in the first half of the year aligns with its expectations for economic growth resilience and persistent inflation, but unexpected policy changes this year have altered the outlook for future trends.

Firstly, the trade war will lead to a tendency for stagflation in the second half of the year: global GDP growth is expected to slow to 1.4%, while the core inflation rate will rise to 3.4%, primarily due to soaring U.S. inflation related to tariffs. The goods-producing sector will benefit from early investments made in the first half of the year, but they will bear the brunt of this slowdown. Global factory output and capital expenditure will contract.

Despite soaring U.S. inflation, poor economic growth in other regions has contributed to moderate deflation. The core inflation rate in the Eurozone is expected to fall below 2%. China's exports to the U.S. have significantly declined, but this drop has been offset by increased export volumes to other regions.

Although there are differences in inflation trends, JP Morgan expects major central banks to adopt widespread easing policies. The Federal Reserve has expressed a cautious stance but is likely to respond to early signs of weakness in the labor market. The slowdown in core inflation and growth will create conditions for further interest rate cuts in other regions. JP Morgan is confident in its forecast framework for the second half of 2025, but the severity of the stagflation trend is difficult to assess accurately. There is significant uncertainty regarding the transmission of unprecedented trade shocks. More unexpected situations may arise in the political/policy arena. Notably, JP Morgan expects U.S. tariff rates to be raised.

JP Morgan assesses that there is a moderate upward possibility of deviation in global GDP growth from its forecast for the second half of 2025. This deviation stems from its positive assessment of the health of the private sector, a still robust financial environment, and the buffering effects of anticipated increases in energy supply and easing fiscal policies.

The risk of unexpected changes in the economy leans towards the unfavorable side, and we estimate that there is up to a 40% chance of the U.S. economy falling into recession. The fundamental reason for the high risk of recession in the U.S. economy is the concern that a sharp decline in household purchasing power in the short term will interact with sluggish business sentiment, leading to corporate contraction.

A behavioral buffering mechanism from an industry that remains healthy and has not conducted layoffs is crucial for sustaining continuous growth in the U.S. economy, but the cost of this buffering mechanism will be the compression of profit margins. This compression of profit margins will weaken the U.S. economic growth outlook, accompanied by reduced immigration flows, high inflation in the macroeconomic context, and persistent large budget deficits—factors that will all drive interest rates up