Global economy: Are we still on track for a soft landing?

Much has happened since Q4 Outlooks published in September cheeringly predicted, as a matter of consensus, that the global economy was heading for a soft landing after the sharpest inflation surge and most abrupt monetary tightening in decades. On the economic front, more data have been released, helpfully adding pixels to the growth, labour market and inflation pictures. On the politics and policy fronts, China unveiled a large stimulus package, the US voted in a new President and Congress, the UK released a radical 2025 budget, and France and Germany limped into new governing arrangements.

Taking stock of all these developments, is a soft landing still the central scenario for the global economy and most of its parts? In a nutshell, yes, but uncertainty bands on both sides have increased (mostly upside for the US and downside for the rest of the world)

Beginning with the US economy, the latest data affirms the soft-landing scenario. Despite a low payrolls print in October, the labour market remains in robust health judging by the jobless claims below expectations, and the unemployment still near historical lows at 4.1%. Business activity expanded at the fastest pace since 2022 according to PMIs data, led by services, but with the outlook for manufacturing at its highest in 2.5 years. CPI inflation is showing some stickiness but is declining nonetheless with headline down to 2.6% y/y in October and signs from last Friday’s PMI were encouraging in terms of price pressures in the pipeline. This week’s PCE data will be keenly watched to predict the Fed’s next move.

Will it last? We still do not know how much of his campaign pledges Donald Trump’s administration will implement, nor when. They include pro-growth measures (tax cuts, deregulation) and anti-growth, inflation-boosting ones (tariffs and tighter immigration policy). The first economic team nominations—Scott Bessent at Treasury and Harold Lutnick at Commerce—suggest both sides of the agenda will be pursued in parallel. A similar dynamic was at play during the first Trump administration. The US economy didn’t break nor fly off the rails. But this time could be very different, because public debt and deficits, inflation, interest rates, and the ouput gap are all higher, as are stock market valuations. Pushing with equal strength on a string or a coiled string will give different results. Still, most measures will take time to enact, and the administration will want to avoid roiling markets. The most likely 2025 scenario might be described as “no landing”, with growth and inflation not decelerating much, if at all, and the Fed keeping policy more restrictive than earlier expected. But a boom-bust scenario is plausible too.

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