Global Economic Commentaries and Expectations. Week 35, 2025

Global Economic ReviewIn recent weeks, the global economic landscape...

author: Ahura Chalaki

144

published:Aug 24, 2025 8:50

Reading Time:

26 minutes

category:weekly

Global Economic Review

In recent weeks, the global economic landscape has experienced significant shifts, marked by divergent inflation trajectories and evolving central bank policies across major economies. While some regions have seen inflationary pressures recede—prompting discussions around potential monetary easing—others continue to grapple with persistent price growth, resulting in a cautious approach from policymakers.

At the Jackson Hole Symposium, central bankers and policymakers emphasized the challenges of managing inflation and supporting growth amid shifting global dynamics. Fed Chair Powell signaled openness to future rate cuts but stressed the need for caution given persistent inflation and labor market uncertainties. Discussions highlighted the importance of data-dependent policy and the risks posed by geopolitical tensions, demographic shifts, and evolving productivity trends. Markets have responded positively to the cautious yet slightly dovish tone, with investors closely looking for further signals on the global policy outlook.

In the United States, the latest data showed inflation picking up: core consumer prices rose 3.1% year-on-year in July, the fastest pace since February, and producer prices jumped 0.9% in a month (3.3% annually). For those tracking inflation trends or planning around interest rate shifts, this PPI report is a strong signal that upstream cost pressures are intensifying. While this complicates the Federal Reserve’s job, markets still anticipate a rate cut in September; futures imply a ~75% probability according to CME Group’s FedWatch tools.

In contrast, monetary easing began in the Asia-Pacific. The Reserve Bank of New Zealand (RBNZ) cut its policy rate by 25 bps to 3.00% in a closely split decision, with some members preferring a larger cut. The central bank signaled a dovish outlook, projecting further rate declines to 2.55% by early 2026 and citing persistent inflation pressures that should ease by mid-2026. Growth and labor market forecasts were downgraded, with unemployment expected to rise. Governor Hawkesby emphasized excess economic capacity after recent stagnation. More rate cuts are likely, with another 25-bps reduction expected in November as risks remain skewed toward additional easing. Similarly, the Reserve Bank of Australia, also a week earlier, lowered its cash rate by 25 bps to 3.6%—the lowest in over two years—citing easing inflation and a cooling labor market. These moves suggest a broader shift toward accommodation as price pressures are moderate outside the US.

Meanwhile, China’s economy flashed warning signs. July data revealed weakening growth in drivers across the board. Retail sales grew only 3.7% year-on-year (below expectations), and producer prices remained deeply negative at –3.6%, reflecting overcapacity and sluggish demand. With momentum fading, Beijing is expected to roll out more stimulus to prop up activity. However, the PBoC held the one- and five-year loan prime rates unchanged at their historical lows, 3.00% and 3.50% respectively.

Europe offered little positive news—a summer lull in data still underscored a soft outlook. A key German investor survey (ZEW) showed expectations deteriorating, and eurozone industrial output fell in June, reinforcing a weak near-term outlook for the region.

UK inflation surprised to the upside in July, with headline and core CPI both rising to 3.8% year-over-year and services inflation hitting 5.0%. Transport costs, especially airfares, drove much of the increase. While the data matches recent BoE projections, persistent inflation and strong services activity make near-term rate cuts challenging. Despite expectations for two 25 bps cuts by early next year, the BoE is likely to wait for clearer evidence of disinflation before easing further, especially as recent PMI data show services sector strength and ongoing inflationary pressures.

Canada’s July CPI was softer than expected, with headline inflation dropping to 1.7% and core inflation steady at 3.1%. The slowdown was mainly due to a sharp fall in gasoline prices resulting from the carbon tax removal. Underlying inflation pressures are subdued, with goods prices nearly flat and services inflation easing. While the data support possible rate cuts, the Bank of Canada will likely wait for further confirmation from GDP, labor, and inflation data before acting. Expectations are for gradual rate cuts starting in October, eventually lowering the policy rate to 2.25% by early 2026.

Financial markets responded to these crosscurrents with both risk-taking and caution. Global equities extended their summer rally, hitting multi-year or record highs in some markets. Momentum remained strong – notably in Japan, where the TOPIX index surged ~4% last week to its highest level since 1989 on the back of robust GDP data. U.S. stocks also notched gains, buoyed by hopes that Fed policy will soon ease. At the same time, safe-haven assets attracted interest. Gold prices pushed back toward record territory (near $3,400/oz) as investors sought hedges against economic uncertainty and a weaker dollar. In contrast, crude oil remained under pressure from oversupply concerns, briefly hitting two-month lows before a modest rebound. Taken together, the global economy is at an inflection point – cooling inflation and pockets of slowing growth have prompted some central banks to pivot toward support, even as the U.S. economy’s resilience keeps Fed policy in play for now. Markets are oscillating between relief that the worst of inflation may be over and worries that growth is losing steam.