International economic outlook: October 2025

Forecast changes

Our outlook for the global economy continues to improve, and we have again revised our global GDP growth forecast higher. We now believe the global economy can grow 3% this year—impressive amid a sea of risks. Upward revisions to our U.S. and China growth forecasts are driving the global growth forecast adjustment; however, the balance of risk to global growth is tilted to the downside, most notably as renewed trade tensions between the United States and China have taken shape.

We now believe the European Central Bank (ECB) will keep rates unchanged at its remaining meetings this year and keep policy rates steady for all of 2026. We also now believe the Bank of Canada will deliver a 25 bps rate cut in October and the Bank of England will lower policy rates in December—both forecast adjustments calling for earlier easing. In addition, we maintain our view that the Bank of Japan will deliver a 25 bps rate hike in December as economic conditions are consistent with tighter monetary policy and as policymakers are not overly influenced by new political leadership. In emerging markets, we now believe Banxico will extend its easing cycle.

Our outlook for the Federal Reserve is unchanged, and we continue to believe the Fed can deliver 100 bps of additional easing into mid-2026. As the Fed cuts rates more aggressively than international central banks, we believe the dollar downtrend can persist into next year. With that said, we believe the dollar can rebound starting in H2-2026 as the Fed easing cycle ends and the U.S. economy recovers. Also, the dollar's haven and reserve status should be reinforced next year, which should offer a tailwind to the long-term performance of the greenback.

Key themes

Global economic conditions continue to improve as market participants digest tariffs, financial markets push higher, and as monetary and fiscal policy turns more accommodative. Our U.S. economist colleagues upwardly revised their forecast for U.S. GDP growth, while China's economy continues to demonstrate resilience in the face of trade tensions and structural challenges to growth and providing policy support. We now forecast the global economy to grow 3% in 2025, but threats of additional tariffs on China and subsequent retaliation keep risks to our global growth outlook tilted to the downside.

FOMC policymakers are likely to deliver more easing than peer G10 central banks as the U.S. labor market shows signs of softening. The federal government shutdown has delayed new labor market data; however, we believe the Fed has enough evidence of a worsening labor market to cut rates in October and into mid-2026. International central banks, however, may be constrained in the amount of easing that can be pursued from here as monetary policy space continues to shrink.

The U.S. dollar has weakened over the course of 2025, and Fed rate cuts that outpace foreign central banks should lead to further dollar depreciation in the coming quarters. However, we believe that once the Fed's easing cycle ends, the dollar will begin to rebound over the second half of 2026 and into 2027. We also believe that the U.S. dollar's reserve nor haven status is in jeopardy. As the dollar's reserve stature is reinforced next year, the dollar should receive a long-term tailwind.

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