Chief Economists Outlook January 2025

12Chief Economists Outlook 18 Giles, C. (2024). 19 European Central Bank (ECB). (2024). 20 Clarfelt, H. & Smith, C. (2024). 21 Ibid.While central banks remain vigilant following the inflationary surge of recent years, the tightening phase for global monetary policy has clearly ended. The overwhelming majority of chief economists expect policy to remain unchanged or loosen in all regions this year, with expectations of interest rate cuts highest for Europe, China and the US. Given the large discrepancies in the economic prospects for Europe and the US, the policy stances of the European Central Bank (ECB) and the Federal Reserve are expected to diverge further.18 With growth in the Euro area projected to remain low and inflation expected to settle around the target rate of 2%, the ECB looks likely to continue on a path of further interest rate cuts, following three cuts of 0.25% in the final four months of 2024, which took the main policy rate to 3%.19 In the US, the Federal Reserve cut rates by a full percentage point during the same period (to 4.5%), but its outlook has shifted, and in December, it signalled a slower pace of loosening in 2025 than previously expected.20 This pivot to a more hawkish position jolted financial markets – the dollar jumped to a two-year high, and the S&P500 stock index dropped by nearly 3%.21 Figure 5. Fiscal policy outlook What is your expectation for fiscal policy in the following geographies in 2025? Source: Chief Economists Survey. (2024, November).Share of respondents (%)United States Latin America and the CaribbeanEurope East Asia and Pacific South Asia Middle East and North Africa Sub-Saharan AfricaChinaCentral AsiaLooser Unchanged Tighter 969 6824812 83 8012903128 41 73 7512 12 8 492 49144