The firm's dovish Fed outlook hinges on the belief that 2025 inflation figures were skewed by a one-time tariff effect. As this effect fades, underlying disinflationary trends from a rebalancing labor market will emerge, justifying rate cuts even with solid GDP growth.
A significant policy divergence is expected in Europe. The ECB is forecast to hold rates steady, balancing cyclical growth against structural weaknesses. In contrast, the Bank of England is projected to deliver three cuts, driven by the UK's unique combination of rising unemployment and a rapidly improving inflation outlook.
Despite accumulating massive deposits (100 trillion RMB), Chinese households are reluctant to spend. This is driven by the need to "self-insure" due to a limited social safety net and concerns over wealth destruction from the property downturn. Boosting consumption requires structural policy changes, not just stimulus.
In a stark regional divergence, Japan is tightening its monetary policy while its Asian peers are easing. The Bank of Japan has raised rates to a 30-year high, and its government bond yields have surpassed China's. This counter-cyclical stance makes Japan a significant outlier in the Asia-Pacific economic landscape.
Chronic issues like high energy costs and regulatory burdens, combined with a failure to implement meaningful reforms (e.g., only 11% of the Draghi report), have weakened Europe's competitiveness. This leaves the continent exposed and losing market share as China aggressively pursues an export-led growth strategy.
Despite a property downturn subtracting nearly 1.5 percentage points from GDP, China's economy is buoyed by a hyper-competitive manufacturing sector. With cost advantages of 20-40% in key high-tech sectors, its export growth is outpacing global trade, creating a resilient but unbalanced economic picture.