The OECD has updated its growth forecasts for major economies. Global GDP growth is now expected to be 2.9% in 2025 and 2026, which is lower than the earlier estimates of 3.1% and 3.0%. The United States is projected to grow by 1.6% in 2025, down from 2.2%, and 1.5% in 2026, a slight drop from 1.6%. The Eurozone’s growth estimates remain unchanged at 1.0% for 2025 and 1.2% for 2026.

China and the UK

China’s growth forecast for 2025 is now 4.7%, a small decrease from 4.8%, and stays at 4.3% for 2026. The UK has also seen lower projections, with a forecast of 1.3% for 2025 and 1.0% for 2026. Japan’s GDP growth is expected to be 0.7% for 2025, down from 1.1%, and a slight increase to 0.4% in 2026, up from 0.2%. The OECD mentions that changes in economic policies, like tariffs, influenced these revised forecasts. These adjustments show a general slowdown in expected growth and a reevaluation of conditions linked to ongoing policy decisions and demand. They reveal a cautious attitude among economists due to tighter credit conditions and reduced consumer spending. This could also indicate shifts in global trade dynamics. For those analyzing implied volatility and interest rate expectations, Powell’s recent sensitivity to data becomes more significant. The US’s lower growth forecast, revised from 2.2% to 1.6% in 2025, points to slower domestic momentum, making rate cuts more likely. This shift could quickly impact rate markets, increasing short-term volatility and highlighting the need for adaptable strategies. Lagarde’s interest rate cycle is evident in the euro area’s static numbers. While no downward changes occurred, the ECB’s careful balancing act of controlling inflation expectations and easing policies will affect yield spread trades, particularly in peripheral markets. We suggest maintaining short-term volatility positions while being cautious of aggressive rate-cut bets unless there’s a significant decrease in key metrics.

China Growth and Global Implications

In China, the change from 4.8% to 4.7% seems small, but it indicates that global growth isn’t returning to pre-pandemic levels. This puts pressure on regional producers and those with investments in Asia excluding China. We are wary of risks due to CNH volatility, especially around any new actions concerning property relief or credit flow. Sunak’s position in the UK, reflecting lower GDP projections, shows a dip to 1.3% in 2025 and further to 1.0% in 2026. This suggests lower productivity and consumer pressures under weak policies. There’s potential for steepening in UK rates, but we are cautious, monitoring for swift reversals from surprising CPI results. Kishida’s forecast of 0.7% growth for 2025 and a slight rise to 0.4% for 2026 highlights real wage stagnation and structural issues. This is more about weak domestic demand than overheating. Increased interest in long yen options indicates that others share this view. Demand for longer-term JGBs is not just a pension issue anymore; it reflects anticipated policy inertia. A clear takeaway from all this is that reactive policy cycles are now driving cross-asset volatility more than overall economic health. We observe these shifts as signposts for adjusting strategies, not just as data changes. These forecasts are significant indicators that can influence short-term pricing. While longer-term expectations remain steady, this invites trading opportunities in calendar spreads. It’s better to engage with what’s actively moving rather than speculate about the long-term outlook. This isn’t solely about numbers from one country; it’s about adaptability and precise recalibrations. When policymakers change their approach, we adjust—specifically targeting delta hedges and conditional risks. Stay focused on this perspective. Create your live VT Markets account and start trading now.

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