Swiss Re’s November 2024 Macro Outlook highlights the dominance of politics and policy, with key developments including its revision to US inflation and interest rate forecasts due to President-elect Trump’s victory, increased UK policy rate and yield forecasts following the Autumn budget announcement, as well as concerns over potential US tariffs and fiscal sustainability contributing to global macro volatility.
Following the US elections, Swiss Re now expects 2.2% of GDP growth in 2025 for the country, +30bps from its latest forecast, given strong consumption momentum going into next year with upside bias.
Swiss Re stated: “Strong US Q3 real GDP growth of 2.8% confirms our view of a healthy economy and consumption. We raise our growth forecast to 2.8% for this year and 2.2% (+30bps) for 2025. The US labour market is normalising despite a disrupted October non-farm payroll report after manufacturing strikes and two hurricanes.”
Moreover, the reinsurer anticipates a looser fiscal policy post-election. While this might result in short-term growth, it could also renew worries about debt sustainability, and the impact of such policies could be mitigated by protectionist immigration and trade regulations.
For the UK, the country’s large budget spending plans add to medium-term growth, whereas China’s CNY 10trn stimulus package for local government debt will do little to offset the economy’s long-run structural weaknesses even if it helps mitigate near term risks, Swiss Re also noted.
US tariffs would further constrain China’s growth. The Euro area’s weak recovery will be subject to trade policy uncertainty.
Regarding inflation, the reinsurer stated that the new US administration’s proposed economic policy direction will raise the risk of more inflation pressure and higher interest rates.
As a result, Swiss Re has revised up our US CPI forecasts for 2025 (+20bps) and 2026 (+10bps).
“US policy proposals could slow the disinflation process. The new US administration’s proposed policies of fiscal easing, reduced immigration and tariffs will likely add upside to wage growth and inflation, depending upon their timing, sequencing and severity,” analysts explain.
Adding: “We revise up our US inflation forecasts and do not expect return to the Fed’s 2% target next year. The US political shift, assuming no drastic policy changes, will have little direct impact on near-term inflation in other regions, but currency movements may exacerbate price volatility. We lift our 2025 UK inflation forecast to 2.2% (+20bps) post-budget.”
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In its monthly outlook, Swiss Re also highlighted the adjustments to its interest rate forecasts. The 2025 year-end Fed funds rate and UST 10y yield predictions have been revised upward.
In contrast, rates in the Euro area and China have been revised downward due to increased monetary easing measures.
Analysts stated: “Fewer rate cuts by the Fed, 10y yield outlook higher. Our view of a stronger US economy, higher inflation and economic policy uncertainty points us to a shallower easing cycle.
“We expect only three Fed rate cuts in 2025, down from five, to a Fed funds mid-point forecast of 3.9% by year end – still restrictive, in our view. We revise up our 10y UST yield forecast to 4.2% at end-2025 based on a faster term premium rebuild.”
Due to fiscal loosening in the UK, Swiss Re expects fewer rate cuts and higher 10-year yields. Given the rapid disinflation and weak growth, one more ECB rate cut is also expected for this year.
However, the reinsurer’s 10-year yield forecasts have been raised due to a probable decrease in fiscal consolidation.
Additionally, Swiss Re has also lowered China’s rate forecasts because the PBoC has hinted at further easing and a government stance that favours growth more than potential increases in US trade tariffs.
