Swiss Re has updated its outlook on economic and financial risks, noting strong US economic performance and the potential impact of fiscal and trade policies across major markets.
US real GDP growth in Q3 was 2.8%, underscoring a resilient economy. Swiss Re has revised its US growth forecast to 2.8% for 2024 and 2.2% for 2025, an increase of 30 basis points. The labor market, while normalizing, faced disruptions from recent manufacturing strikes and hurricanes.
In its report, Swiss Re highlighted that it anticipates a shift toward looser fiscal policy in the US following elections, which could provide a short-term boost to economic growth but also renew concerns about debt sustainability. Meanwhile, protectionist policies related to immigration and trade may counteract some of these growth benefits.
The firm also highlighted medium-term growth contributions from the UK's budget spending plans and the limited effectiveness of China's CNY 10 trillion (US$1.37 trillion) stimulus package, which it sees as mitigating near-term risks but failing to address deeper structural challenges. Trade policy uncertainty is expected to weigh on recovery prospects in the Eurozone.
Swiss Re notes that fiscal easing, reduced immigration, and tariff policies proposed by the U.S. administration are likely to slow the disinflation process. These measures could push up wage growth and inflation depending on their implementation.
Swiss Re has revised its US inflation forecasts upward, predicting that inflation will remain above the Federal Reserve's 2% target in 2024. Currency fluctuations may also exacerbate inflation volatility in other regions.
In the UK, post-budget inflation forecasts for 2025 have been adjusted to 2.2%, reflecting an increase of 20 basis points.
Swiss Re expects limited short-term impact of U.S. political changes on inflation in other regions unless there are significant shifts in trade or fiscal policy. However, the firm highlights the potential for such policies to drive regional price volatility through exchange rate fluctuations.
Swiss Re has adjusted its US interest rate outlook, citing stronger economic growth, higher inflation, and policy uncertainty. The firm expects the Federal Reserve to cut rates three times in 2025, down from an earlier forecast of five cuts. This would bring the Fed funds midpoint to 3.9% by the end of 2025, which Swiss Re considers restrictive.
The 10-year US Treasury yield forecast has also been revised upward to 4.2% for the same period, reflecting a faster rebuild of term premiums.
In the UK, fewer rate cuts and higher 10-year yields are projected, driven by fiscal expansion plans. Swiss Re expects one more European Central Bank rate cut this year due to rapid disinflation and weak growth, but higher 10-year yields as fiscal consolidation slows.
In contrast, China’s rate forecasts have been lowered as the People's Bank of China signals further monetary easing and adopts a more pro-growth stance amid potential higher US tariffs.
Swiss Re has revised its baseline US economic forecasts upward for growth, inflation, and interest rates, while cautioning that policy uncertainty is likely to heighten interest rate volatility in the months ahead.
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