Economic outlook: Global growth dependent on a resilient U.S.

Economic outlook: Global growth dependent on a resilient U.S.

As inflation eases and central banks around the world cut interest rates, the outlook for the global economy remains decidedly mixed heading into the new year. Much like the past few years, the United States and India continue to lead the way, driving global economic activity, while weaker economies in Europe and China seek to stimulate growth.

With U.S. labor markets healthy, profit growth solid and business investment picking up, the International Monetary Fund (IMF) recently raised its forecast for U.S. economic growth in 2025 to 2.2%. That prediction offsets downward revisions for other advanced countries, including the largest economies in Europe. China, meanwhile, continues to struggle with a real estate downturn and worries about a broadening trade war following U.S. President-elect Donald Trump’s victory on November 5.

“I tend to think about the world in terms of tailwinds and headwinds,” says Rob Lovelace, principal investment officer of New Perspective Fund®. “The U.S. has plenty of tailwinds at the economic level, the industry level and the company level. Japan is picking up some tailwinds. And I think both Europe and China are dealing with some real headwinds at the moment.”

Welcome to the Benjamin Button economy

Can U.S. strength lift up the global economy and financial markets along with it? The world’s largest economy is striving to do just that.

Odd as it may sound, the U.S. economy appears to be taking a page straight out of the 2008 movie The Curious Case of Benjamin Button. Film buffs will remember that the title character, played by Brad Pitt, ages in reverse, from old man to young child.

“The U.S. economy is going through a similar transition,” says Capital Group economist Jared Franz. “Instead of moving through the typical four-stage business cycle that has defined the post-World War II era, the economy appears to be shifting from late-cycle back to mid-cycle, conveniently avoiding a recession.”

A mid-cycle economy is generally characterized by rising corporate profits, accelerating credit demand, softening cost pressures and a shift toward neutral monetary policy. “We’ve seen all four of those in 2024,” Franz notes. “Going forward, I believe the U.S. is headed for a multi-year expansion period, perhaps fending off a recession until 2028.”