Global scenario and forecasts for the fourth quarter of 2025

As we approach the end of 2025, it is clear that the global economy is becoming increasingly fragile due to rising government debt, weakening national currencies and slowing growth. The United States, in particular, is struggling to strike a balance between persistent inflation and deteriorating employment, while Europe is caught between low growth and the need for public spending. Against this backdrop, central banks are caught between the risk of easing too soon and the risk of tightening too much.

The trade war now appears to be entering a second phase. The agreement in principle reached with the European Union in July, which brings tariff levels to those of a century ago, helps to reduce uncertainty and establish clearer trade relations between the two economic areas. The cost of tariffs will be borne partly by exporters, partly by importers, and partly by US consumers. Trade relations between the United States and China are currently in a phase of stabilisation: the introduction of tariff caps and temporary deferrals has halted the escalation witnessed in recent years, alleviating uncertainty without reverting to pre-war tariff levels. This fragile balance shifts the focus from tariffs to strategy, where the real battle is being fought through the search for alternative markets and direct state guidance on purchases, which is having an increasingly significant impact on global supply chains and the redefinition of trading partners. The range of goods involved — from chips to soybeans — highlights the extent of trade leverage, which now covers both strategic sectors and agricultural commodities.

The halting progress of tariff negotiations between the United States and the rest of the world makes it extremely difficult to isolate and quantify the actual impact of tariffs on price dynamics. Continuous postponements, revisions of caps and temporary measures prevent sufficient stability for robust analysis. Conversely, the extent to which tariffs are passed on to final prices depends on variables that differ between sectors and countries, such as supply chain margins, demand elasticity, the openness of value chains, and producers' ability to absorb costs. Empirical evidence suggests that the impact on the price components of core goods is already visible, particularly in recent months. However, the lack of a stable tariff trajectory limits visibility of the medium-term structural effects. It will be from autumn onwards, with the arrival of Christmas spending, that the final effect will become apparent. Finally, due to the trade war and global value chains, the tariff effects in the United States are not confined to the domestic market. In Europe, albeit to a lesser extent, inflationary pressures are emerging due to increased costs along supply chains, which are partially offset by disinflation caused by Chinese oversupply continuing to flood international markets. The impact of tariffs on company margins is also significant. This cannot yet be quantified in a manner consistent with the available data due to differences between production chains and the erratic application of tariffs in recent months. The effects are likely to become clearer in the current quarter, and there is a fear that margin compression will lead to cost-cutting, particularly with regard to personnel.

Indeed, despite fears of inflationary pressures, the US Central Bank began a new phase of rate cuts, mainly due to employment data. In particular, the reduction in the number of workers by almost one million over the last twelve months was a cause for concern. In September 2025, the US Bureau of Labor Statistics (BLS) published a preliminary revision of employment data for April 2024 to March 2025, reducing previous estimates of non-farm payrolls by around 911,000. This correction reflects the incorporation of more comprehensive administrative data, which indicated lower employment growth than was initially reported in the monthly surveys. This was partly due to unreported business closures and less precise statistical estimates. This revision is in addition to the one in February 2025, which had already revised the period from March 2023 to March 2024 downwards by around 598,000 jobs. Together, the two revisions paint a weaker picture of the labour market than the initial estimates.

While not representing a crisis scenario, this situation does force us to reconsider the overall strength of the US economy, particularly with regard to neutral interest rates. This data, which became available at the start of September, undoubtedly influenced the Fed's decision to make its first rate cut in mid-September and to forecast at least two more cuts by the end of the year. By contrast, a year ago, the Fed anticipated that rates would be well above 4% by the end of 2025. The current US administration is also aiming for lower interest rates to reduce the cost of borrowing, weaken the currency, and allow for greater economic growth. These three effects combined reduce the burden of federal debt. The presence or absence of government-appointed officials only serves to raise expectations, but the path to lower rates has been set.

This therefore reflects a generally negative outlook on the dollar, coupled with a scenario of fiscal dominance. This is a situation in which fiscal requirements — in this case, the need to manage high public debt — take precedence over monetary policy, thereby reducing the autonomy of the central bank. In this context, the central bank is forced to keep interest rates low and/or intervene in the government bond market to avoid debt tensions, even if this risks persistent inflation. Price stability therefore becomes less important than fiscal sustainability, which has direct implications for confidence in the currency.

The effects of this scenario depend greatly on the economic conditions in which it develops. In the current situation of substantial economic strength, for example, a phase characterised by accommodative monetary policies and the maintenance of an expansionary fiscal policy favours riskier assets in anticipation of economic growth driven by these measures. Even the imposition of tariffs, a form of regressive taxation that mainly impacts demand, will redirect part of consumption towards domestic supply, which is supported by investment dynamics fuelled by an expansionary fiscal scenario.