International economic outlook

Summary

Forecast changes

• Again, we have revised our global GDP forecast higher. We now believe that the global economy can grow 2.8% this year, higher than our prior forecast of 2.7%. While acknowledging that 2.8% global growth is still moderate by historical standards, the upward revision reflects more resilient activity in the United States, which we believe can support activity in Mexico. Specifically for Mexico, we no longer believe the Mexican economy will enter a recession this year, although growth in 2025 is still likely to be subdued.

• Despite an upward revision to our U.S. growth outlook, we continue to believe that the Federal Reserve will cut interest rates by 75 bps before the end of this year. We maintain our view that the FOMC will deliver rate cuts at the September, October and December meetings. We also maintain our view that foreign central banks are approaching the end of their respective easing cycles. In the G10, the European Central Bank is nearing, or possibly already at, the end of its rate-cutting cycle, while emerging market central bank easing cycles are also maturing.

• We continue to hold our short- and long-term views on the U.S. dollar. In the short term, we believe the dollar can continue to weaken as the Fed lowers policy rates quicker than international central banks and as U.S. growth slows in H2-2025. Over the course of 2026, central bank and growth trends are still likely to shift in favor of the U.S. dollar, and as a result, we maintain our view that the greenback can strengthen for the entirety of next year.

Key themes

• The global economy continues to demonstrate notable resilience in the face of widespread tariffs. In fact, tariffs have done little to disrupt global economic activity, and this month, we revised our global GDP growth forecast modestly higher. A more constructive outlook for the global economy stems from resilient U.S. economic trends and a Mexican economy that is moving further away from recessionary conditions. Together, these developments account for the upward revision to our global growth outlook this month.

• Upward revisions to the U.S. growth outlook may mask the fact that we still expect economic trends in the U.S. to soften noticeably in the second half of 2025. Softer U.S. activity has been on display recently as non-farm payrolls were underwhelming, while sentiment surveys surprised to the downside. As the U.S. economy slows, we continue to believe that the Fed will respond with more aggressive easing than financial markets are priced for. Internationally, central banks may be nearing the end of easing cycles, leaving the Fed cutting rates at a more aggressive pace relative to peers through the end of this year.

• Growth differentials and policy rate differentials should contribute to the U.S. dollar remaining under pressure through the end of 2025. In that sense, we forecast broad dollar weakness with most G10 and emerging market currencies strengthening in the immediate period ahead. In 2026, we believe the Fed's easing cycle will end and the U.S. economy will get a tailwind from fiscal stimulus. Next year, rather than the U.S. economy underperforming, growth trends should favor the United States. In 2026, we believe the dollar will respond positively to these trends and strengthen broadly against most currencies across regions.

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