This Week’s Developments in the US Economy
The Importance of Credible Projections and the Implication for Our Outlook
As we refine our remarks for our 2025 Outlook webinar on January 27th, we scrutinize every data point and projection, adjusting where necessary. Working first with credible projections makes that work easier and our assertions more durable. At the foundation of our Outlook are projections for global and domestic growth—what do the next few years have in store for the US economy and others? One of our preferred sources, the IMF released its first World Economic Outlook (“WEO”) of the year, offering valuable insights into the projected path of the global economy. Since the previous WEO released in October 2024, the IMF revised global growth projections slightly upward, with much of the gain attributed to the US.
The IMF highlights an improving outlook for the US in 2025, buoyed by robust demand and favorable financial conditions. In contrast, conditions are expected to hold or worsen elsewhere, with several advanced economies seeing downward revisions signaling challenges ahead.
With this latest update it is important to note the constantly evolving dynamics of global economic growth and the inherent complexity of economic projections. While the IMF projections lacked the dramatic fluctuations observed during and immediately after the pandemic, the pre-pandemic forecasts proved relatively accurate, with an average annual deviation of 16 basis points between 2011 and 2019. This historical accuracy lends credibility to the updated 2025 projections given uncertainty and volatility across the globe.
Rising US Expectations Amid Global Headwinds
At the end of 2024, the IMF projected global GDP growth for 2025 at 3.2%. However, the January WEO revised this forecast upward to 3.3%, primarily driven by improved growth expectations in the US while other advanced regions projected to face headwinds going forward. Despite this improvement, global growth remains below the 2000-2019 average of 3.7% with numerous challenges contributing to an uncertain outlook and potential spillover effects across interconnected economies.
Key factors shaping the outlook include the ongoing Russia-Ukraine conflict and ongoing tensions in the Middle East, with the latter posing risks of energy shocks and disruptions to global trade routes, creating potential ripple effects on global markets. Furthermore, trade and fiscal policy uncertainties may dampen investor and consumer confidence, and China’s deflationary pressures, indicative of weak domestic demand, threaten to impact economies integrated into its supply chain. Adding to these challenges, political instability in the Euro Area, particularly in France and Germany, risks reducing the region’s economic performance and undermining its global influence. While these multifaceted issues highlight substantial challenges to the global growth outlook, the IMF’s improved US projections suggest that the US may be less affected by some of these disruptions, standing out as a relative bright spot amid widespread global uncertainties.
Diverging Paths Across Advanced Economies
The latest growth projections for 2025 reveal a striking divergence between advanced economies, with the US emerging as a key driver of optimism while many of the other regions grapple with persistent challenges. Growth projections for advanced economies were revised upward by 10 basis points, but the revision was mainly driven by the upward adjustment in the US growth forecasts, which helped offset downward revisions for the Euro Area and Canada.
The IMF’s projections further reinforce our US Outlook with the US seeing a meaningful upward revision for 2025, with increased by 50 basis points compared to the October 2024 WEO and 100 basis points compared to the January 2024 WEO. The IMF attributes this to resilient labor market performance and increased investment activity. The IMF also notes that near-term risks for the US economy lean to the upside, the only country for which this is the case, unlike most other economies where downside risks dominate. We look forward to reviewing this and the implications for our 2025 Outlook in our upcoming webinar.
