Global Economic and Investment Outlook – August 2025…
Australia
Disinflation advances, rate cuts likely
“The Reserve Bank of Australia is cautiously dovish amid progress on disinflation and diminished uncertainty.”
—Grant Feng, Vanguard Senior Economist
Australia’s economy grew just 0.2% in Q1 and 1.3% year over year, constrained by weaker public demand and modest private sector activity. Despite this, Vanguard maintains a 2025 GDP growth forecast of 2%, though risks remain tilted to the downside.
Inflation has moderated, with the trimmed mean CPI falling within the RBA’s 2%–3% target for two consecutive quarters. Yet, persistent supply constraints—such as weak productivity and strong wage growth—are limiting disinflationary momentum.
Following a 25-basis-point rate cut in August, the cash rate target now stands at 3.6%. One more cut is expected by year-end as the RBA navigates between easing inflation and underlying cost pressures.
10-Year Nominal Return Forecasts (Australian dollar)
Australian equities: 4.8%–6.8% | Volatility: 20.2%
Global ex-Australia equities (unhedged): 4.7%–6.7% | Volatility: 16.4%
US equities (unhedged): 4.0%–6.0% | Volatility: 17.4%
Australian bonds: 3.6%–4.6% | Volatility: 6.3%
Global bonds (hedged): 4.1%–5.1% | Volatility: 5.3%
Australia Economic Outlook – Year-End 2025
GDP: 2% | Unemployment: 4.2% | Inflation: 2.5% | Rate: 3.35%
United States
Steady performance amid tariff pressure
“The U.S. economy is performing in line with our expectations. Tariff-related pass-throughs are becoming more apparent.”
—Josh Hirt, Vanguard Senior Economist
The U.S. economy remains resilient despite rising trade tensions. Recent developments have pushed effective tariffs higher, now projected to approach 17% by year-end.
Labor market softness—reflected in job gains falling below replacement rates—suggests the economy is stabilizing at a neutral growth rate. GDP is expected to grow 1.5% in 2025, with core inflation near 3%.
Following earlier hawkish signals, the Fed is now expected to prioritize employment, with two rate cuts projected before year-end.
U.S. Economic Outlook – Year-End 2025
GDP: 1.5% | Unemployment: 4.7% | Inflation: 3% | Rate: 4%
Canada
Resilience amid trade headwinds
“Canada’s economy is navigating a difficult trade environment with more stability than expected.”
—Adam Schickling, Vanguard Senior Economist
Despite trade friction with the U.S., Canada’s economy shows modest growth. June GDP rebounded after a May decline, supported by retail and wholesale activity.
Though hiring slowed in July—especially among younger workers—the overall labor market remains stable. The BoC held rates steady at 2.75% in July, citing global and domestic resilience.
We expect a 50-basis-point cut by year-end, with risks tilted toward further easing if trade uncertainty persists.
Canada Economic Outlook – Year-End 2025
GDP: 1.25% | Unemployment: 7.5% | Inflation: 2.5% | Rate: 2.25%
Mexico
Positive surprises, but risks linger
“Mexico’s economy is showing signs of stabilisation, but remains vulnerable to external pressures.”
—Adam Schickling, Vanguard Senior Economist
After exceeding expectations with 0.7% Q2 growth, Mexico continues to benefit from nearshoring and strong U.S. demand.
However, fiscal tightening and weaker remittances are restraining domestic consumption. Despite trade uncertainty, long-term prospects remain favorable due to structural integration with the U.S. economy.
Banxico has cut rates twice since June and is expected to ease once more in 2025.
Mexico Economic Outlook – Year-End 2025
GDP: <1% | Unemployment: 3.2%–3.6% | Inflation: 3.5% | Rate: 7.5%
United Kingdom
Labor softening supports easing outlook
“The U.K. labor market continues to soften, reinforcing our view that inflationary pressures will gradually ease.”
—Josefina Rodriguez, Vanguard Economist
Job losses and falling vacancies highlight a weakening U.K. labor market. Inflation, particularly in services, is expected to ease further as wage growth moderates.
Despite limited fiscal space, the Bank of England is expected to continue easing, with rates falling to 3.75% by year-end.
U.K. Economic Outlook – Year-End 2025
GDP: 1.3% | Unemployment: 4.8% | Inflation: 3% | Rate: 3.75%
Euro Area
Tariff changes minimal, outlook steady
“The EU-U.S. trade agreement reduces risk of escalation. Outlook remains broadly unchanged.”
—Josefina Rodriguez, Vanguard Economist
While tariffs on E.U. goods are set to rise, the scope is limited. We expect GDP growth around 1%, with inflation moderating below 2% by 2026.
The ECB is likely to keep its deposit rate steady at 2% for now, with one final cut expected this cycle.
Euro Area Economic Outlook – Year-End 2025
GDP: 1.1% | Unemployment: 6.3% | Inflation: 2.1% | Rate: 1.75%
Japan
Inflation sticks, policy tightening ahead
“Persistent inflationary momentum and easing trade uncertainty support interest rate increases.”
—Grant Feng, Vanguard Senior Economist
Structural labor shortages are fueling wage growth and sustained inflation, despite weaker growth and political uncertainty.
Domestic demand remains resilient. The BoJ is expected to raise its policy rate to 0.75% by year-end, continuing its path toward normalization.
Japan Economic Outlook – Year-End 2025
GDP: 0.7% | Unemployment: 2.4% | Inflation: 2.4% | Rate: 0.75%
China
Second-half slowdown likely despite strong start
“Growth looks set to slow amid fading stimulus and persistent deflationary pressure.”
—Grant Feng, Vanguard Senior Economist
After a stronger-than-expected first half, China’s growth outlook dims due to weaker exports, a soft property sector, and ongoing deflation risks.
We expect 2025 GDP growth of 4.8%, though recovery in inflation will be slow and uneven.
China Economic Outlook – Year-End 2025
GDP: 4.8% | Unemployment: 5.1% | Inflation: 0.5% | Rate: 1.3%
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