In an international environment that is still as anxiety-provoking as ever, uncertainties remain, numerous and multifaceted. Nevertheless, hoping that those emanating from US economic policy will calm down (and that at least tariffs will stabilise), the scenario is staying the course. It is characterised by a slowdown without recession in the US, followed by an acceleration in 2026, a continued recovery in the Eurozone thanks to investment support and, while China in the grip of ‘involution’ is seeing its growth performance erode, an ‘emerging universe’ that continues to show unprecedented resilience.

In the US, the first half of the year was turbulent in terms of both sentiment and growth: after having been lulled by the successes promised by the ‘US exception’ and the privileges offered by the status of the USD, investors expressed their disaffection at the end of the sensational ‘Liberation Day’.  From an economic point of view, in anticipation of aggressive tariffs, imports jumped in Q1, before falling sharply: they weighed on growth before providing support. After falling by 0.6% in Q1 (annualised quarterly variation), GDP grew by 3.8% in Q2.

And yet, the broad outlines of our US scenario, based on the foreseeable timetable of the Trump administration's radical economic decisions, have not changed: a slowdown this year (aggressive tariff increases, anti-immigration policy, inflation), then a slight rebound next year (support provided by the One Big Beautiful Bill Act, deregulation). Our scenario thus assumes average annual growth of 1.7% in 2025, down significantly from 2.8% in 2024, before an acceleration to 2% in 2026. The current deceleration is accompanied by a weakening of the labour market. While the pace of job creation is slowing, layoffs remain moderate, as are the upward pressures on the unemployment rate. The latter could reach a peak of around 4.5% by the end of the year.

Despite the still limited adjustment in the labour market, attention has recently focused on the growing vulnerability of employment, to the point of overshadowing concerns about inflation. However, tariffs, at their maximum impact point, would add nearly 80bp to the increase in prices over one year. The impulse would be largely temporary but could drive headline and core inflation towards 3.2% by the end of 2025. Inflation would still significantly exceed the 2% target at the end of 2026: our forecasts place core and headline inflation at around 2.9% and 2.7% respectively. It is therefore bold to assume that the Fed will neglect the inflation component of its mandate in favour of the employment component alone.

In the Eurozone, despite the reluctance of consumption and a more unfavourable external environment, the recovery continues. Echoing US behaviour, sustained growth (2.4% in annualised quarterly variation), fuelled by a rebound in exports in Q1, was followed by a sharp cooling, which nevertheless left growth in positive territory (0.4%) and offered a comfortable carryover. Even if the repercussions of tariffs (ultimately less aggressive than feared) continue to weigh slightly on Q3, progress already achieved now allows us to expect GDP growth of 1.3% in 2025, the pace of which should be maintained in 2026.

Past resilience is related to domestic demand: it has weakened but is at a slightly higher pace than its long-term trend, and investment, in particular, has weathered uncertainty well. As for the scenario of maintaining growth at its potential pace, it is based, above all, on investment, driven by European funds, defence spending and the German recovery plan. In contrast, the impact of the Turnberry trade agreement, concluded this summer between the EU and the US, would be marginally negative, subtracting 0.1ppt from growth in 2026 compared to our previous scenario.

In a context that should have clearly weakened them, the economies of the ‘emerging bloc’ continue to hold up well. They are benefiting from the disaffection with the USD, which is easing pressure on their currencies and interest rates (local and USD), from disinflation and from the good performance of their labour markets. Their growth could thus approach an average of 3.9% in 2025 and 2026: a good performance that should not lead one to underestimate (or even to forget) the fragilities. These economies remain exposed to a potential market shock, they face a downward trend in their average growth and will have to adapt to a new competitive environment while dealing with the Chinese trajectory: the risks linked to the phenomenon of ‘involution’ go beyond China alone and fuel the fear of deflation exported to Asia.

In China, the persistent weakness in consumption, the prolonged correction in the real estate market and overcapacity in various sectors (steel, electric vehicles, solar or electronics) continue to fuel deflationary pressures, particularly visible on producer prices, which could fall by 2.6% in 2025. This phenomenon, called ‘involution’, is now officially ‘denounced’ by the authorities, who want to curb excessive price competition and tackle overcapacity. The first impact of the ‘anti-involution campaign’ was to reduce the fall in producer prices, without any major stimulus effect on demand. Even if support measures are being stepped up, many of them are structural reforms and their positive impact on inflation will not be felt immediately. Inflation is expected to remain almost non-existent at 0.1% in 2025, before rising to 0.6% in 2026. Due to the increase in US tariffs, the persistent weakness of domestic demand and despite various shock absorbers (reorientation of Chinese exports, resilience of global demand, support provided by the policy mix), growth is expected to continue to slow from 5% in 2024 to 4.8% in 2025 and 4.4% in 2026.

On the monetary policy side, this is not the time for relaxation. In the US, the resilience of inflation is likely to disillusion the proponents of rapid and massive monetary easing. In the Eurozone, inflation towards target and the recovery, albeit modest, argue in favour of a status quo, followed by tightening, albeit still a long way off. Anxious to avoid second-round effects, the BoE could postpone its next rate cut. As for Japan, while moving away, rate hikes remain on the agenda.

Specifically, in the US, our scenario is for a further cut before the end of the year, lowering the upper bound of the Fed Funds rate range to 4%, at which point the Fed is expected to pause throughout 2026. This scenario is quite far from that of the market (which anticipates 110bp b of cuts by the end of 2026) and considers, in particular, that the checks and balances seem sufficient to allow the Fed to resist the pressure of the Trump administration. As for the ECB, in June it lowered its deposit and refinancing rates to 2% and 2.15% respectively, levels at which it is expected to maintain them before raising them slightly, when the economic improvement poses a risk of inflationary pressures. This increase would only take place after the recovery is over, and therefore not before the end of 2026 at the earliest.

Interest rates are expected to come under moderate upward pressure. In the US, the possible resurgence of inflationary concerns and disappointed hopes of massive monetary easing could result in a modest rise in interest rates coupled with a flattening of the curve. Encouraged by European growth that is more resilient than expected, then supported by fiscal expansion in Germany, this movement is expected to spread to the Eurozone.

In our US scenario, the yield on 2Y Treasury bonds, which has room to rise, is expected to reach 3.70% by the end of 2025. Also at the end of 2025, the 10Y yield on US Treasuries would be at 4.30%, but the 30Y rate (4.85%) would struggle to cross the ‘psychological threshold’ of 5%, thanks to demand from pension funds. The German 10Y yield (Bund) is expected to reach 2.80%. The revamping of the hierarchy between Eurozone sovereigns would continue with a spread against the Bund of 50bpfor Spain, on the one hand, and 75bp for France and Italy, on the other.

Finally, weighed down by a wave of disenchantment in the wake of the sensational ‘Liberation Day’, as well as by certainly exaggerated expectations of monetary easing, the USD suffered. While capital inflows to the US have not dried up and the easing is likely to be less than expected, the USD could ‘smile again’. However, patience is needed before the EUR depreciates: our scenario assumes that the EUR against the USD would be close to recent highs at the end of 2025 (1.17), before falling in 2026 (towards 1.10 at the end of the year).