Forecasting economic and market variables is inherently difficult. Forecasting is tough. Research suggests that only 23% of professional forecasts prove accurate.
Add in US policy uncertainty – President Trump signed a flurry of executive orders on his first day in office. As a result, predicting the outlook for the global economy becomes even more challenging than usual.
Given this highly unpredictable geopolitical and macroeconomic landscape, we, as investment managers, serve our clients best by decoding the current situation as thoroughly as possible. Additionally, we must continually assess and recode how it impacts multi-asset decisions over time.
Predicting markets remains difficult
While geopolitics continues to influence global markets at every turn, we believe that central banks’ response to inflation will play a key role. It will create both challenges and fresh yield prospects.
This view also appears in our latest Global Investor Insights Survey (GIIS). According to the survey, investors expect central bank policy and higher interest rates to have the biggest impact on their portfolios over the coming year. Importantly, if governments worldwide start implementing extreme protectionist policies, deflationary forces could take hold in other regions.
For instance, if Trump aggressively enforces high trade tariffs and large deportations, the US economy would experience stagflation. Moreover, this could slow economic growth for the rest of the world by lowering confidence and amplifying deflationary pressures. This, however, is not our current baseline scenario.
Our current forecast assigns a 53% probability to US growth at 2.5% in 2025 and 2.7% in 2026. We expect Trump’s proposed “reflationary” fiscal policies to materially boost growth. However, these policies involve significant tax cuts, which will likely cause higher inflation. As a result, we have raised our US inflation forecast from 2.4% to 3.1% in 2025. We also increased the 2026 projection to 2.8%.
Uncertainty in market forecasts
Regarding the international economic impact, we predict a slow recovery in the UK and Eurozone. Both the European Central Bank (ECB) and Bank of England (BoE) have a clear easing bias. However, sticky inflation may frustrate policymakers and stunt recoveries.
For China, we have revised our GDP growth forecast down to just 4% in 2025. We anticipate only a mild rebound in 2026. Exports were already set to weaken before Trump’s election. At the same time, domestic demand remains sluggish.
The government’s reluctance to stimulate internal demand through fiscal policy means growth pressures are unlikely to ease until the second half of 2025.
Globally, we anticipate growth in the region of 2.5–3% through 2025–2026. We have nudged our 2025 GDP growth forecast down to 2.5%. However, we expect looser financial conditions to drive a rebound to 2.8% in 2026. All things considered, this baseline scenario represents a positive outcome.
Similarly, US consumers appear relatively strong in terms of real wage growth. This growth helps safeguard purchasing power. Household finance also remains healthy. US households are well positioned and not overleveraged.
Interest rates and risk scenarios
In terms of interest rates, we disagree with market predictions. We believe that reflationary policies in the US may force the Fed to hike rates again in 2026.
A similar scenario is likely in the Eurozone and the UK. We forecast that rates will exceed market expectations in 2026. Of course, we attach only a 53% probability to this baseline scenario. Various risk factors remain in play.
Forecasting is tough and the most significant risk is that Trump’s policies become far more aggressive than anticipated. This would push the US economy into stagflation and tip the 
rest of the world toward recession. It would also widen macroeconomic divergences even further.
This is why flexibility and diversification sit at the heart of our “decode to recode” approach. Given the exceptionally high level of geopolitical uncertainty facing financial markets, we believe investors need a dynamic, active investment strategy.
By focusing on carefully selected opportunities, this approach can help investors navigate volatility while optimising potential returns.
Stuart Podmore | Director | Investment Propositions | Schroders | mail me |
