Earlier in October, the International Monetary Fund (IMF) upgraded global GDP growth forecast to 3.2% for 2025 up 0.2% from earlier forecast. Projection for 2026 was kept unchanged at 3.1%.  Advanced and emerging/developing economies are projected to grow 1.6% and 4.2% in 2025, respectively up from 1.5% and 4.1% earlier.  Lower U.S. tariffs, front loading of U.S.-bound exports, monetary and fiscal expansion underpinned the upgrade. Global inflation is projected to soften to 4.2% and 3.7% in 2025 and 2026, respectively largely unchanged from prior forecasts.  Global trade volume growth projections were significantly upgraded to 3.6% and 2.3% from 1% and 0.4% for 2025 and 2026, respectively as trade deals bring greater clarity. 

Labor market concerns trumped lingering upside risks to inflation, allowing the FED to lower the fuds rate by 25bps at the final December meeting. Unemployment rate rose to 4.6%, a four-year high. Market expects the FED funds rate to settle between 3-3.25% by end-CY26 implying two more 25bps in rate cuts is in store for this cycle after cumulative reductions of 75bps in CY25. In an effort to shore up liquidity, FED Chair Powell ended USD480 billion annual quantitative tightening (QT) on 1^st December. In addition, a yield curve steepener, de facto QE program was announced through the purchase of short-term treasuries up to USD40 billion per month. U.S. Q3 GDP growth based on first estimates rose 4.3% as high-income consumers continue to spend. 

Japan and EU has successfully negotiated trade agreements with the U.S. A 15% tariff on goods exports are applied to EU and Japan in exchange for binding energy purchases and investments. Certain goods categories may see lower or higher tariffs subject to further negotiations. A 47.5% tariffs is currently applied to Chinese exports down from 145% earlier. India faces a massive 50% tariff as Trump zeroes in on Russian energy purchase. Two of the U.S. largest trading partners Mexico and Canada are hit with 25% and 35% tariffs, respectively on goods outside of the USMCA. Negotiations are still ongoing.

After eight consecutive rate cuts, the ECB held rates unchanged for the fourth consecutive meeting. The ECB upgraded GDP growth forecast for CY25 to 1.4% from 1.2% and 1.2% from 1% for CY26.  The ECB signaled that policy rates are currently neutral as inflation has fallen back to around 2%. The BOE slashed interest rate for the fourth time this year by 0.25% to 3.75% marking the sixth cut for this cycle. The vote was contentious with a slim 5-4 majority voting for to ease. The divergence reflected elevated inflation read of 3%YoY in November despite softening from October’s annual pace. The BOE expects Q4CY25 GDP to show zero growth. Market expects one more 25bps cut for this cycle. 

The BOJ voted to hike policy rates to 0.75%, the highest level in 30 years. 10YR JGBs surged above 2% for first time since 1999. Despite the hike, real rates remain firmly negative.  Rengo, Japan’s largest labor union umbrella group, is seeking wage hikes of 5% or more in 2026. This matches what Rengo asked for in 2025 and resulted in the biggest pay hike in 34 years. The BOJ recently raised 2025 GDP forecast to a range of 0.6% to 0.8% from 0.5% to 0.7% earlier. China’s GDP grew 5.2%YoY in the first three quarters. However, Q3 growth fell to 4.8% pressured by lower fixed asset and property investments. Target for 2026 GDP growth will converge around 5% with a 4% fiscal deficit to help fight off deflation. 

India’s GDP slowed to 6.5% in FY25 due mainly to the contraction in government spending after a robust 9.2% growth in FY24.  India’s benchmark equity index, the BSE Sensex, remains slightly below all-time-high. The RBI has slashed policy rates by a cumulative 125bps since the start of 2025. A projected rise government spending, moderating inflation and tax relief has sparked optimism. Inflation dipped below sub-1% for both October and November and with real rates as high as 4-5% the RBI still has room to maneuver policy rate lower. The RBI lifted FY26 GDP growth forecast again by 0.5% to 7.3% as monetary stimulus and fiscal reforms bolstered economic momentum. 

Executive Summary by Arun Pawa, IP, FM, IA, Investment Strategist 

CIMB Thai Bank (CIMBT)

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