President Trump takes office - what's in store for the rest of the world?

2025 has started with a flurry.

No more so than in the US, with President Trump signing a raft of executive orders after his inauguration on Monday. His actions were wide-ranging, but focused on core election pledges and his supporter base:

• Tighter immigration and border control – designate an “invasion across the southern border”, stop refugee arrivals and family reunification, allow military and federal officers to act as immigration and border enforcement agents, prioritise construction of the border wall, deny federal funds to ‘sanctuary’ cities among many others
• International trade – review trade arrangements, particularly with Canada, Mexico, China and fentanyl trade, create an External Revenue Service to collect tariffs, suspend US participation in a global minimum corporate tax deal
• Climate and energy policy – withdraw the US from the Paris climate agreement, rescind many of Biden’s climate policies, declare a national energy emergency and adopt measures to promote oil and gas extraction; Diversity and civil rights – Eliminate DEI programs in federal department and agencies and repeal several Biden policies on racial, ethnic and LGBTQ rights
• Government efficiency – establish the Department of Government Efficiency, freeze federal hiring (with exceptions), require federal workers to return full-time to the office rather than work from home
• Tech – repeal Biden’s guardrails on AI, announced a US$500 billion Stargate AI joint-venture project to construct data centres and infrastructure to support AI, pause ban on TikTok
• Other – pardon Capitol Hill rioters, withdraw from the World Health Organisation, measures to boost nationalism including renaming Gulf of Mexico to Gulf of America and reinstating Mount McKinley in Alaska. 
   

Broadly speaking, there have been no huge surprises by Trump in his first week. In last week’s Weekly Economic Brief, we outlined our baseline expectations for the US economy under a Trump Presidency. We continue to retain these views. This week, we turn our attention to the implications for the rest of the world.  
QIC expects the global economy will remain on a soft-landing path, although this is dependent on President Trump scaling down his tariff policies from those threatened. Global real GDP growth is expected to average around a 3.2% pace in 2025, not too dissimilar to the experienced over the past two years, but around ½ percentage point below the average experienced in the decade prior to COVID. 

QIC expects growth in China to slow over the coming year. While fiscal stimulus has seen momentum improve and more stimulus is likely in March, we expect the ongoing property market downturn, weakening demographic trends and an increase in tariffs by President Trump (to an average effective rate of 25%) to weigh on the economy. QIC expects real GDP growth in China to slow from a 5.0% pace in 2024 to a 4.5% pace in 2025.

In the euro area, a slow economic recovery is expected to continue to progress. We expect Trump will only pursue targeted tariffs on the region, lifting the effective tariff rate by 1 percentage point. Notwithstanding these external headwinds, an improving outlook for the European consumer due to firmer prospects for real incomes should continue to foster the recovery. QIC expects real GDP growth in the euro area to pick-up from 0.7% in 2024 to 1.1% in 2025. With underlying inflation on-track to return to the ECB’s target by mid-2026, we expect the ECB will deliver a further 75bps of rate cuts this year. Similarly, we expect growth in the UK to firm from 0.8% in 2024 to 1.3% in 2025, with the BOE cutting rates by 75bps this year and a further 50bps in 2026.

Although our baseline forecast remains for a soft-landing in the global economy, we see significant risks to the downside. Should President Trump swiftly pursue an 11 million deportation program and adopt a 10% universal tariff on all trade and a 60% tariff on China, a global recession would become increasingly likely. While Trump’s first week has done little to shift our 2025 global outlook for a soft-landing, uncertainty will remain high until China, Canada and Mexico manage to reach a trade deal with Trump.