Global growth is losing momentum

After a surprisingly resilient 2024, the world economy is set to slow in 2025. Global GDP growth is forecast to be around 2.7–3.0% in 2025 (versus ~3.3% last year), according to the IMF. Tighter financial conditions and new trade frictions are weighing on activity. Notably, world trade volumes are expected to expand only about 1.7% in 2025, lagging GDP as escalating tariffs and protectionism restrain cross-border trade. Major institutions (IMF, World Bank, OECD) all foresee sub-par growth in 2025, followed by a modest pickup in 2026. In the short term, downside risks dominate – from policy missteps to weaker demand – keeping the global outlook cautious.

Major central banks, including the Federal Reserve and the European Central Bank (ECB), are shifting toward monetary easing, with interest rate cuts aimed at supporting growth amid economic uncertainties. The Federal Reserve’s policy rate stands at 4.25%–4.50%, while the ECB’s deposit facility rate is at 2.25%.

Market sentiment remains cautious, as reflected by the S&P Global PMIs. In April 2025, the J.P. Morgan Global PMI Composite Output Index, produced by S&P Global, posted 52.1, slightly up from 51.5 in March. This indicates continued global economic expansion, though at a subdued pace compared to 2024. The global manufacturing PMI declined to 49.8, signaling contraction for the first time in four months, while the services sector saw stronger growth. Business confidence fell to a six-month low due to concerns over tariffs and cost pressures.

Inflation is forecast at 4.3% globally, declining more slowly than anticipated due to trade disruptions. Trade flows face significant challenges from geopolitical tensions, particularly U.S.–China trade disputes, which threaten supply chains and global economic cooperation.

United States Economy, June 2025 Outlook

Heading into June 2025, the U.S. economy presents a mixed picture. Growth momentum has softened, and financial conditions are volatile, even as policy signals turn more accommodative. The Federal Reserve remains on pause amid crosscurrents, consumer spending shows signs of strain, and key labor metrics indicate a cooling job market. Meanwhile, fiscal policy is shifting toward stimulus through tax cuts, raising longer-term debt concerns. Traders and investors face a landscape where trade-policy twists and shifting rate expectations drive rapid market swings.

Monetary Policies and Fed!

The Federal Reserve held its policy rate steady at 4.25–4.50% in early May and signaled a cautious stance going into late-May communications. These included FOMC minutes and Fed speakers’ comments, which underscored heightened uncertainty. Officials noted risks that inflation could remain more persistent than hoped, even as growth and hiring slow. Indeed, “almost all” Fed participants warned of potentially difficult trade-offs in the coming months if prices do not cool while the economy weakens. Chair Powell emphasized that policy will depend on incoming data and the evolving outlook, reiterating in a late-May meeting with President Trump that the Fed remains “entirely” data-dependent.

The main market driver in June will be the Fed meeting. The CME FedWatch Tool, as of May 31, 2025, indicates a 97.8% probability that the Fed will maintain rates at 4.25–4.50%, reflecting market expectations of continued caution due to trade-policy uncertainties and inflation pressures. The upcoming Summary of Economic Projections (SEP) during the June meeting could provide updated forecasts for interest rates, GDP growth, and inflation, potentially shaping expectations for the remainder of 2025. Analysts suggest that a faltering economy or clearer signs of inflation nearing 2% could prompt discussions about rate cuts—possibly starting in July or September—with markets anticipating a year-end rate range of 3.50–3.75%.

In short, the June 17–18 FOMC meeting will be pivotal. The Fed will update its forecasts and must balance sticky inflation fears against nascent signs of an economic slowdown. Barring any major surprises, traders expect the Fed to keep rates unchanged in June while maintaining a vigilant, data-driven outlook.

Labor Market

Initial jobless claims have begun to rise noticeably. New filings hit 240,000 in late May – the highest weekly level since 202, suggesting layoffs are picking up. This uptick in claims, alongside an increase in continuing unemployment claims to ~1.92 million (a 3½-year high), indicates some softening in the labor market. Indeed, analysts note that the long-resilient jobs engine is finally showing “cracks.”

The April 2025 employment report from the Bureau of Labor Statistics showed non-farm payrolls increased by 177,000, slightly below March’s revised 185,000 but above the Dow Jones estimate of 133,000. The unemployment rate remained steady at 4.2%, indicating a resilient labor market despite trade policy concerns.

U.S. Equity Markets

S&P 500 performance (year-to-date 2025) shows a sharp April fall followed by a strong rebound through late May. U.S. equity markets have been on a roller coaster in Q2, driven by the tug-of-war between trade turmoil and tech-driven optimism. In April, President Trump’s surprise tariff announcements (“Liberation Day” levies on imports) sparked a sharp selloff – the S&P 500 plunged almost 19% below its peak at one-point, as investors feared a recession. However, stocks staged an impressive comeback in May. By the end of May, the benchmark S&P 500 had rallied to within ~3.6% of its all-time high. The index jumped +6.2% in May, its best month since late 2023, while the tech-heavy Nasdaq surged +9.6% reuters.com. This rebound was fueled by two key factors:

Trade relief – the White House eased or delayed some of the harshest tariff threats by mid-May, boosting market sentiment

Outperformance of mega-cap tech, especially anything related to artificial intelligence. Investors’ risk appetite returned once Trump granted a tariff “reprieve” to allies (e.g., postponing a threatened 50% tariff on EU goods) and a major consumer confidence index showed an unexpected jump in May.

From a trading perspective, U.S. equities face a few near-term inflection points. The mid-June FOMC meeting is one. Any hawkish surprise from the Fed could trigger a pullback in rate-sensitive stocks after this big run-up; profit-taking is a risk. Conversely, a dovish tone or confirmation of a pause could extend the rotation into risk assets.

Trade developments remain a wild card – for instance, a looming July 9 deadline for U.S.–EU tariff negotiations could swing markets. A deal would remove a major overhang, while a collapse could reintroduce volatility.

Generally, the U.S. equity outlook entering June is cautiously optimistic – the market has shown impressive resilience in pricing in trade risk, and dip-buyers remain active. Short-term traders will continue to ride the momentum in winners (AI and tech) but should be mindful of sector rotations if economic data disappoint or if bond yields climb. In summary, U.S. stocks have delivered a surprise rally into mid-year, but navigating the next phase will require balancing the allure of Fed/tax stimulus against the reality of slower growth and geopolitical uncertainty.

U.S. Dollar and FX Impact

The U.S. dollar has been on the back foot, reflecting shifting rate expectations and global confidence in U.S. assets. The DXY dollar index hovered around the 99 level at the end of May – on track for its fifth straight monthly decline. The U.S. dollar has lost over 10% of its value vs. major currencies since January, a notable slide that coincides with the U.S.’s worsening fiscal and trade backdrop. Several factors are driving this weakness:

• Markets anticipate the Fed will cut rates later this year, which erodes the yield advantage of USD assets. U.S. 10-year Treasury yields have come off their peaks (around 4.43% now) and 30-year yields – while elevated – have risen largely due to supply fears rather than Fed hikes. In contrast, other central banks (ECB, etc.) remain in tightening mode, narrowing interest differentials.
• The dollar’s safe-haven appeal has been dented by policy uncertainty.

The bias remains for a weaker dollar. The administration’s stance implicitly favors a softer currency to boost U.S. exports and manufacturing, and indeed U.S. officials have not voiced concern about the dollar’s slide. A softer dollar has short-term benefits, as it makes U.S. exports more competitive and inflates overseas earnings for American multinationals (bolstering S&P profits). But it also has downsides, like potentially higher import-price inflation – something the Fed cannot ignore if the trend persists.

In summary, the U.S. dollar in June is at a crossroads. Trending lower on fundamentals (narrowing rate gap, fiscal worries), yet still vulnerable to quick sentiment-driven swings. FX traders should brace for continued volatility, especially around key events like the Fed meeting and any surprise economic data. The DXY’s five-month losing streak underscores a notable shift in global capital flows – one where the U.S. is no longer the singular magnet it was when rates were rising. Going forward, clarity on U.S. policy (both monetary and fiscal) will be crucial to restoring confidence and stability in the dollar’s value. However, we still expect sideways movement around the 100 marks for the U.S. Dollar Index.

Eurozone Economic Outlook for June 2025

May Overview

As of April 17, 2025, the European Central Bank (ECB) reduced its key interest rates by 25 basis points, setting the deposit facility rate at 2.25%, the main refinancing operations rate at 2.40%, and the marginal lending facility rate at 2.65%, effective from April 23, 2025. This marked the seventh consecutive rate cut since June 2024, reflecting the ECB’s response to easing inflation and faltering economic growth. The ECB’s Governing Council emphasized a data-dependent, meeting-by-meeting approach, avoiding pre-commitment to a specific rate path due to uncertainties, particularly from U.S. trade policies.

Inflation was reported at 2.2% in April 2025, close to the ECB’s 2% target, with core inflation at 2.4%. The ECB noted that monetary policy is becoming less restrictive, supporting borrowing and loan growth.

In the manufacturing sector, Eurozone activity showed signs of persistent contraction in May 2025, with the HCOB Eurozone Manufacturing PMI rising to 49.4 from 49.0 in April, marking a 33-month high but still below the 50-threshold indicating expansion. The PMI Output Index remained stable at 51.5, suggesting some resilience in production. Industrial production data for March 2025 reported a robust 2.6% month-on-month increase in the euro area, driven by capital goods and intermediate goods, though energy production declined, according to the Eurostat Industrial Production report. However, year-on-year growth was flat, reflecting ongoing challenges. Nevertheless, trade tensions and high energy costs continue to dampen industrial activity, with a significant rebound unlikely in 2025.

European Economic Growth, June 2025 Outlook

Analysts indicate a strong consensus for another 25-basis point cut, potentially lowering the deposit facility rate to 2.0% in the ECB Monetary Policy meeting in the first week of June. This expectation is driven by inflation trending toward the ECB’s 2% target and ongoing economic challenges, including trade uncertainties from U.S. tariffs. For instance, the tariffs’ effect on European economies reduces pressure on the ECB consensus for a June rate cut. However, ECB President Christine Lagarde highlighted that clarity on tariff impacts would not be available by June, as the 90-day tariff freeze ends post-ECB rate cuts meeting. Forecasts from BNP Paribas suggest the deposit rate could stabilize at 2.0% by June 2025, viewed as the neutral rate. If economic growth weakens further, the ECB could consider larger cuts, but it depends on the fate of trade tensions as well.

Considering the May Flash PMI of 49.4, the trend of slow improvement suggests that June’s PMI might hover near 50, potentially signaling stabilization rather than robust growth. Could increase defense spending, projected to rise significantly by 2030, provide a boost to industrial output? The second half of 2025 is expected to be stronger than the first, but uncertainties around global trade and energy prices could hinder recovery.

On the economic growth front, Spain’s robust 2.6% growth forecast is driven by strong domestic demand and tourism, while Greece’s 2.3% growth benefits from EU-funded investments. In contrast, Germany’s stagnation (0.0%) reflects export vulnerabilities.

Considering ongoing economic concerns, increased defense spending or EU funds further narrow the core‐periphery gap as well. Therefore, we cannot be very positive about the Eurozone’s economic progress in June, including for the common currency.

UK Economic Outlook for June 2025

May Overview

As of May 7, 2025, the Bank of England’s Monetary Policy Committee (MPC) reduced the Bank Rate by 0.25 percentage points to 4.25%, following a 5–4 vote. Two members favored a larger 0.5-point cut to 4.0%, while two preferred maintaining the rate at 4.5%. This decision reflects a cautious approach to monetary easing amid global trade uncertainties—particularly U.S. tariffs—and domestic inflationary pressures. The MPC’s goal is to achieve the 2% inflation target sustainably while supporting growth and employment. Inflation in March 2025 was 2.6%, down from 2.8% in February, but forecasts suggest a rise to 3.5% by Q3 2025 due to higher labor costs and energy prices. The BoE’s May 2025 Monetary Policy Report noted significant progress in disinflation over the past two years, with external shocks receding and monetary policy curbing second-round effects.

On the production front, the manufacturing sector continued to contract in May 2025, with the S&P Global Manufacturing PMI at 45.1, down from 45.4 in April, marking a persistent downturn. Production and new business declined, and staffing levels fell at the fastest rate in five years, reflecting weak demand and high costs. Industrial production dropped by 0.7% year-on-year in March 2025, with the broader Index of Production—which encompasses manufacturing, mining, energy supply, and water management—also showing contraction. The House of Commons Library notes that manufacturing accounted for 8.6% of UK economic output and 8.0% of employment in Q4 2024, underscoring its significance despite challenges.

In the labor market, wage growth cooled to 5.6%, jobless claims rose, and employment gains slowed. On May 14, 2025, the Office for National Statistics reported that average earnings excluding bonuses rose 5.6% year-on-year in March, slightly below the 5.7% forecast and down from February’s 5.9%. Including bonuses, pay growth was 5.5%, above expectations of 5.2% but below February’s 5.7%. Claimant unemployment increased by 5.2 thousand in April—well under the 22.3 thousand forecast and reversing March’s 16.9 thousand decline. Over the three months to March, employment rose by 112 thousand, short of the 120 thousand expected and down from 206 thousand in the prior period. The unemployment rate ticked up to 4.5% in March, matching forecasts and up from 4.4%.

June 2025 Outlook

The market consensus anticipates three further 0.25-point cuts in 2025, potentially lowering the Bank Rate to 3.5% by year-end. Morgan Stanley, however, projects a more aggressive path, with rates possibly reaching 3.25% by December 2025 and 2.75% by mid-2026. If inflation rises to the forecasted 3.5% by Q3, the BoE could pause cuts to monitor inflationary pressures. Alternatively, if trade disruptions weaken growth further, the MPC might opt for deeper cuts to stimulate the economy. The BoE’s forward-looking approach suggests it will closely monitor global trade developments and domestic economic indicators.

As for industrial activity, the ongoing contraction—driven by weak global demand and U.S. tariffs—suggests the PMI may hover below 50, indicating continued challenges. Government initiatives, such as planning reforms to boost investment, may provide some lift. However, trade disruptions still risk constraining growth and limiting industrial recovery. Sectors like electricity and gas, which saw a 1.6% rise in June 2024, could provide some offset if renewable energy investments gain traction.

Japan and Month ahead, June 2025

May Overview

The Bank of Japan’s benchmark interest rate was last recorded at 0.50% as of April 2025, following a rate hike from 0.25% to 0.50% on January 24, 2025—marking the highest level in 17 years. This adjustment ended decades of ultra-loose monetary policy, with the BoJ setting the overnight call rate as its new policy rate, targeting a range of 0–0.1%. The BoJ maintained this rate in its April 30, 2025 meeting, despite cutting economic growth forecasts due to the impact of U.S. tariffs. The central bank projected inflation to hit 2.2% in fiscal 2025, ease to 1.7% in fiscal 2026, and then accelerate to 1.9% in fiscal 2027, reflecting a cautious approach to monetary policy normalization. The BoJ faces high uncertainty, with Governor Kazuo Ueda noting risks from U.S. tariff policies potentially delaying rate hike plans, emphasizing a data-driven and flexible approach to balance growth and price stability.

On the economic activities front, Japan’s industrial activity has shown signs of weakness, with industrial production increasing by 0.20% month-on-month in March 2025, but year-on-year growth at only 1%. The manufacturing Purchasing Managers’ Index (PMI) for May 2025 was reported at 50, indicating stagnation or very slow growth, down from 50.4 in April, reflecting subdued activity levels.

The automotive industry faces certification issues, with Toyota and Mazda halting production or shipments of certain models, while the construction industry grapples with labor shortages due to new government regulations limiting overtime to 720 hours annually since April 1, 2025. Global trade tensions, particularly U.S. tariffs, have added pressure, with the au Jibun Bank flash Japan manufacturing PMI dropping to 48.2 in March 2025, marking the fastest contraction in a year.

In the labor market, the jobs-to-applications ratio remained at 1.26 in April—matching forecasts and March’s reading—while the unemployment rate held at 2.5%, underscoring continued stability in the labor market.

Bank of Japan data show the core consumer price index rose 2.4% year-on-year, above the 2.3% forecast and up from 2.2% in the prior reading, underscoring persistent underlying inflation pressures.

June 2025 Outlook

The BoJ is expected to maintain the current rate of 0.50% in its June 16–17, 2025 meeting, given the high uncertainty surrounding U.S. tariffs and domestic economic conditions. Analysts, including Goldman Sachs, have pushed back their forecast for the next rate hike from July 2025 to January 2026, citing tariff policy uncertainties. A Reuters poll from April 2025 suggested the BoJ would likely keep rates unchanged through June, with a slight majority anticipating a 25-basis-point hike in the following quarter. The central bank will closely monitor inflation trends, wage growth, and global trade developments, with potential rate hikes dependent on stronger real wages and consumption rebounding—or delays if trade tensions persist.

Industrial production is expected to remain subdued in June 2025, with the PMI likely hovering around 50, indicating continued stagnation. The automotive and construction sectors’ challenges, coupled with global trade risks, suggest slow growth. Potential government support, such as tax incentives or infrastructure investments, may be introduced, but immediate impacts are unlikely. Export orders could pick up if trade tensions ease, but this remains uncertain given U.S. tariff policies.

Key Takeaways from Japanese Economy

Monetary Normalization

BoJ has raised its policy rate to 0.50 percent, paused in May, and faces a critical June 16–17 decision amid internal splits and JGB volatility.

Industrial Contraction

April’s –0.9 percent drop in IP and sub-50 PMIs reflect weakening manufacturing, though METI’s forecasted +9.0 percent rebound in May suggests potential short-lived volatility.

Energy Security Challenges

Ongoing reliance on LNG imports (due to minimal storage), stalled offshore wind, and partial nuclear restarts highlight both progress and vulnerabilities in achieving Japan’s 40–50 percent renewables and 20 percent nuclear by 2040 targets.

Equity Markets

Automotive suppliers in Aichi (Core) may benefit if global tariffs ease; conversely, watch Tohoku SMEs constrained by sluggish demand. Renewables developers with offshore wind expertise could outperform if policy incentives are strengthened.

FX & Commodities

A weaker yen (USD/JPY near 147) amid U.S. rate differentials and dovish BoJ guidance may persist, supporting exporters in the Taiheiyo Belt but raising import costs for energy and raw materials, likely keeping inflation mildly above 2 percent.

BoJ rate path & June meeting

The next Bank of Japan interest rate decision is due on June 16–17, 2025; the current key short-term policy interest rate is 0.50 percent (set Jan 24, 2025) and was held unchanged on May 1, 2025, amid mixed growth and inflation signals.

BoJ officials expressed concern that super-long JGB yield swings (30-year yields ~3.2 percent) could spill over to shorter durations; the BoJ is tapering JGB purchases by ¥400 billion quarterly, with potential adjustments after the June 2025 meeting.

China Key Economic Breakdowns: May 2025 Overview and June 2025 Outlook

On May 20, 2025, the PBOC cut its benchmark lending rates for the first time since October 2024, reducing the one-year Loan Prime Rate (LPR) by 10 basis points to 3.0% and the five-year LPR by the same margin to 3.5%. This move was aimed at stimulating consumption and loan growth amid the ongoing Sino-U.S. trade war and a softening economy. Earlier, during its annual meeting on January 3–4, 2025, the PBOC pledged to cut banks’ reserve requirement ratios (RRRs) and interest rates at an “appropriate time” to maintain a “moderately loose” monetary policy and support economic growth. The PBOC’s seven-day reverse repo rate, a key policy rate, was last cut to 1.5% in September 2024, with no further adjustments reported since then.
As of May 31, 2025, there have been no further announcements regarding rate changes since the May 20 cut. The PBOC is likely to maintain the current rates (one-year LPR at 3.0%, five-year LPR at 3.5%) in June, reflecting a cautious approach to monetary easing. Analysts expect further easing could be considered if trade tensions with the U.S. escalate or if economic indicators—such as GDP growth or inflation—weaken significantly. The central bank’s strategy is influenced by the need to stabilize the yuan and manage capital outflows, which limits the scope for aggressive rate cuts. The PBOC may also consider additional measures, such as RRR cuts, to inject liquidity, especially if the trade war intensifies.

China’s manufacturing sector showed slight expansion in April 2025, with the Caixin Manufacturing PMI decreasing to 50.4 from 51.2 in March 2025, indicating a slowdown but still above the 50 thresholds, which separates expansion from contraction. The official National Bureau of Statistics (NBS) Manufacturing PMI for March 2025 was 50.5, marking the fastest expansion in a year at that time, driven by strong new orders and production. However, data for May 2025 is not yet available as of May 31, 2025, suggesting it may be released soon. Industrial production growth has been modest, with mid-single-digit growth expected for 2025, supported by domestic demand but offset by weaker exports due to trade tensions. Challenges include overcapacity in manufacturing—particularly in sectors like green technologies and electric vehicles—as well as frontloading of exports in anticipation of U.S. tariffs.

Industrial activity is expected to remain subdued in June 2025, with the manufacturing PMI likely hovering around 50, indicating stagnation or very slow growth. The sector faces headwinds from U.S. tariffs, which could disrupt export-oriented industries like automotive and electronics. However, domestic demand and government stimulus measures—such as tax incentives and infrastructure investment may provide some support. The property sector, a significant drag on the economy, is expected to stabilize but not become a strong growth driver in 2025.

China’s energy security is key for its economy and remains a critical concern, given its heavy reliance on imported fossil fuels, particularly coal and liquefied natural gas (LNG). In 2023, coal production reached a record high, reflecting the government’s emphasis on energy security amidst global supply chain disruptions. China’s first comprehensive energy law, effective January 1, 2025, focuses on promoting renewable energy, enhancing energy security, and advancing the country’s energy transition. The law supports the development of non-fossil fuels and aims to balance fossil fuel reliance with energy independence, according to. Renewable energy expansion is a key priority, with significant investments in offshore wind farms and large-scale clean energy bases combining solar and wind. China is on track to meet all new electricity demand with renewables, potentially confirming a structural shift in its energy consumption and signaling a peak in emissions, as highlighted. However, coal still plays a dominant role in China’s energy mix, with the government emphasizing its “supporting role” in ensuring energy security.