Regarding inflation, the U.S. core Personal Consumption Expenditures (PCE) price index is expected to slow to 2.4% by the end of 2025, which is higher than the previous forecast (2.0%) but remains at a moderate level. However, if a comprehensive 10% tariff is implemented, inflation could rise to around 3%. In the Eurozone, we expect core inflation to decline to 2% by the end of 2025.
The report points out that our baseline forecast reflects a generally moderate risk environment and signals that the U.S. economy will continue to lead. We expect stocks, commodities, and developed market (DM) bonds to achieve moderate positive returns, while the U.S. Dollar (USD) will gradually appreciate.
This year's economic data further reinforces our long-term optimistic outlook for post-pandemic economic normalization. Global GDP growth in 2024 is expected to be 2.7%, comparable to the growth rate in 2023 and slightly higher than our estimate of potential growth, with U.S. economic growth once again leading among developed markets (DM).
So, why is the actual U.S. GDP growth rate far exceeding other developed economies? This phenomenon is not explained by demand-side factors, but rather can be found on the supply side. According to recent revisions to U.S. national accounts data, since the end of 2019, the annualized growth rate of U.S. labor productivity has reached 1.7%, significantly faster than the pre-pandemic growth trend of 1.3%.
We expect U.S. productivity growth to remain significantly higher than in other economies, which is a key reason why we expect U.S. GDP growth to continue to lead.
In the current economic context, we believe that the U.S. election results will not interrupt the ongoing policy normalization process, and we expect most major central banks to significantly loosen monetary policy in 2025.
We forecast that the Federal Reserve will take consecutive rate-cutting actions before the first quarter of 2025, lowering interest rates to 3.25%-3.5%. After that, the pace of rate cuts will slow down. In fact, the risk that tariffs may drag on short-term growth, combined with the Federal Reserve leadership's preference for front-loaded policy normalization, has strengthened our confidence in continued rate cuts early next year.
Although there is still uncertainty regarding the pace of rate cuts and the final interest rate level after the first quarter, which may depend on whether the Federal Reserve is willing to act in advance against potential future inflation caused by President-elect Trump's policies, our baseline forecast and weighted probability forecast are significantly more dovish than current market pricing.
Overall, the outlook for U.S. GDP growth remains far ahead. U.S. dollar asset allocation has always been highly sought after, and U.S. real estate investment is a popular choice for allocating U.S. dollar assets. It can be said that now is a good time to invest in U.S. real estate. At the same time, EB-5 investment immigration is an important channel for high-net-worth individuals to conduct overseas asset allocation.
