The U.S. economic expansion is showing signs of slowing as the Trump administration’s unpredictable trade policies, restrictive immigration stance, and reductions in social spending begin to weigh on growth and job creation. While equity markets have continued to climb, driven by optimism around artificial intelligence and its potential to boost productivity, broader economic indicators are revealing vulnerabilities. Manufacturing activity remains weak, and the labor market has softened compared to earlier in the year. Inflation, previously under control, is beginning to rise as businesses can no longer absorb the costs of tariffs and are passing them on to consumers. The Federal Reserve faces narrowing options due to rising prices, a cooling jobs market, and increasing political pressure to lower interest rates.
In the eurozone, core economies are struggling. Germany may enter its third consecutive year of contraction, hindered by declining manufacturing competitiveness and persistent labor shortages. Despite some recovery in industrial output, employment and private consumption have not improved significantly. France faces a fiscal crisis fueled by high public spending, with political instability blocking essential reforms. Meanwhile, Southern European nations like Italy, Spain, and Greece have seen improvements in fiscal health, supported by strong service sector growth and rising wages.
The UK economy has stalled, as the Labour government grapples with a high cost of living and deteriorating public services, contributing to low consumer confidence. Japan has shifted toward tighter monetary policy in response to rising inflation, though the Bank of Japan must balance this against risks from weakening global demand and uncertain trade conditions affecting its export-driven economy. South Korea faces soft domestic demand, and its export growth—particularly in automobiles and semiconductors—could suffer if high tariffs are imposed.
China’s overall growth remains stable but increasingly uneven. Persistent deflationary pressures persist due to weak household spending and intense corporate competition, even as exports to non-U.S. markets grow rapidly. Government efforts to reduce destructive competition—dubbed the “anti-involution” campaign—have not been matched with stimulus or reforms to boost consumption. However, measures to encourage retail investment in equities and enthusiasm over AI advancements have driven a sharp rise in stock prices. The property sector continues to decline, undermining private sector confidence.
India’s economy continues to expand robustly, supported by strong urban consumer demand and high manufacturing investment. Declining inflation and prudent fiscal management have created space for potential monetary easing if needed. However, job creation for its large youth population remains a challenge, worsened by growing tensions in U.S.-India economic relations, which have also reduced India’s appeal to foreign investors.
Russia’s growth outlook has dimmed due to rising military spending and falling energy prices, despite having previously weathered Western sanctions. Latin American emerging markets face sluggish growth and large current account deficits. Brazil’s economy is slowing due to weaker household spending and reduced investment. Mexico has performed relatively better, with steady exports and declining inflation supporting modest growth, though weak investment and exposure to U.S. trade risks are limiting momentum.
Despite significant global trade and geopolitical uncertainty, economic growth has remained surprisingly resilient across much of the world. However, as growth moderates, underlying structural weaknesses are becoming more visible. The gap between solid equity market performance and slowing real economic activity may reflect optimism about AI’s transformative potential and hopes for a more stable trade environment, even if tariffs remain elevated. Policymakers should use this period of relative calm to implement reforms and sound policies that enhance economic resilience amid growing instability in the global order.
— news from Brookings
— News Original —
October 2025 update to TIGER: Surface resilience even as underlying fragilities mount
The U.S. economic expansion is losing steam as the Trump administration’s erratic trade policies, harsh attitudes toward immigration, and cuts in social expenditures take a toll on growth and employment. Equity markets have forged ahead, bolstered by exuberance about productivity and other benefits of artificial intelligence (AI). While the probability of a recession remains low, aggregate indicators have thus far masked manufacturing sector weakness and the labor market looks less robust than it had appeared just a couple of months ago. Inflation has remained in check, but that is changing as companies reach the limits of their ability to absorb tariffs and pass on the costs to consumers. The Fed’s room for maneuver is becoming increasingly constrained by an uptick in inflation, a weakening labor market, and explicit political pressures to cut policy rates.
The core eurozone economies are floundering. Germany is facing a potential third consecutive year of economic contraction as it remains beset by loss of manufacturing competitiveness and skill shortages. A revival of industrial production has done little to reverse the decline in job numbers or boost private spending. France is on the brink of a fiscal crisis driven by excessive public spending, with political turmoil impeding meaningful reforms essential for a recovery. The economies of Southern Europe, especially Italy, Spain, and Greece, have seen their reversals of fortune continue, with improved fiscal positions as well as robust service sector expansion and wage growth.
Growth in the United Kingdom has flatlined as the beleaguered Labour government struggles to manage the high cost of living and a failing public services infrastructure, which have contributed to low levels of confidence. In Japan, rising inflation has prompted a hawkish shift on monetary policy, although the Bank of Japan has to navigate around the dangers that the decline in global demand and an uncertain tariff landscape pose to the country’s export-oriented economy. South Korea is confronting weakness in domestic household demand and its export growth could be dented if high tariffs hit its automobile and chip exports.
The Chinese economy has maintained stable aggregate growth but that expansion has become increasingly unbalanced. Weak household demand and cutthroat corporate competition have resulted in persistent deflationary pressures, even as exports to non-U.S. markets have continued to grow rapidly. The government’s “anti-involution” drive to restrain competition that is destructive to corporate profits has not been accompanied either by policy stimulus or reforms to boost consumption demand. Nevertheless, along with measures to increase retail investor participation in stock markets and the confidence boost from China’s AI boom, it has led to a sharp rally in equity prices. The housing market continues to unravel and remains a drag on private sector confidence.
India’s economy continues to post strong growth, driven by a resilient urban consumer base and high levels of manufacturing investment. Falling inflation and disciplined fiscal policy have created room for monetary easing if needed to support growth. The challenge of creating jobs for its young and expanding workforce is being intensified by an uncertain trade landscape, particularly as the U.S.-India economic relationship has turned unexpectedly rocky. This development has also dimmed India’s luster as a destination for foreign investors.
Soaring military outlays and falling energy prices have dampened Russia’s growth prospects, following several years in which the economy had successfully weathered Western sanctions. Emerging markets in Latin America continue to contend with low growth and large current account deficits. Brazil’s economy is slowing, held back by lower household consumption and falling investment. Mexico has fared better, with resilient exports and easing inflation supporting modest expansion, though weak investment and exposure to US tariff risks have tempered growth momentum.
Economic growth has been surprisingly stable in most corners of the world, despite enormous uncertainty in global trade and geopolitics, as well as various short-term and looming long-term pressures that each economy faces. As growth slows even moderately, structural issues that have been simmering under the surface will become increasingly apparent and difficult to ignore. The divergence between growth prospects and equity market performance suggests a more benign outlook, perhaps buoyed by the transformative potential of AI and the hope of less uncertainty in the trade landscape, even if tariff barriers settle at a higher level than in the pre-Trump period. Policymakers need to use this time of relative calm to push forward with reforms and disciplined policies that will improve their economies’ resilience in the face of greater volatility engendered by the breakdown of the rules-based order.