Global Economic Trends: A Divergent Path
The global economy is standing at a highly differentiated crossroads, and market expectations for liquidity easing may once again deviate from reality. According to Morgan Stanley, the policy paths of major global economies will diverge significantly. The United States is expected to experience strong consumption and inflationary pressures due to tariffs, which will force the Federal Reserve to delay interest rate cuts until mid-year.
US Economy: Strong Consumption and Tariff-Driven Inflation
The US economy currently exhibits a puzzling yet resilient divergence. Although the labor market shows signs of weakness, American consumers continue to drive growth. The GDP report for Q3 2025 indicates that real consumer spending grew robustly at an annualized quarterly rate of 3.5%, supported by a continuous increase in household net worth. This strong demand-side performance, combined with cost pass-through from tariff policies, has fundamentally altered the Federal Reserve’s policy trajectory.
Eurozone and the UK: Inevitable Easing Amid Weak Growth
In contrast to the US, the European economy is mired in a quagmire of growth stagnation. The Eurozone’s composite PMI fell from 52.8 to 51.9, signaling a loss of growth momentum as both the manufacturing and service sectors are weakening. The European Central Bank is expected to cut interest rates in June and September this year due to weak growth and low inflation. A similar scenario is unfolding in the UK, where GDP unexpectedly rose in November, but overall growth remains lackluster with extremely weak labor demand.
Japan: Inflation Retreat and Political Turbulence Freeze Rate Hike Plans
Morgan Stanley believes that the Bank of Japan will maintain unchanged rates throughout 2026, contrary to market expectations of further hikes. The core logic lies in the renewed decline in inflation, with Japan’s core CPI projected to fall from 3% to 2% in the coming months. Political uncertainty has become a significant obstacle, with Prime Minister Sanae Takagi facing declining approval ratings and plans to dissolve the House of Representatives for early elections.
China: Continuous Expansion of Export Share and Continuity in Fiscal Policy
Morgan Stanley forecasts that China’s share of the global export market will expand from the current 15% to 16.5% by 2030. On the policy front, the rebound in December’s PMI data reflects the impact of earlier fiscal expansion. China is expected to maintain policy continuity in 2026, with fiscal support matching 2025 levels while adopting a ‘front-loaded’ stimulus strategy.
Emerging Markets: India’s Strength and Latin America’s Turning Point
Among emerging markets, India continues to play the role of a growth engine, driven by policy easing and robust urban and rural demand. Latin America has encountered an opportunity for policy redirection in 2026, with elections in Chile, Colombia, and Brazil potentially driving policy shifts toward a more market-friendly and orthodox direction.
Conclusion
In conclusion, the global economy is expected to follow a divergent path, with the US experiencing strong consumption and inflationary pressures, while the Eurozone and Japan face weak growth and low inflation. China is expected to maintain policy continuity and expand its export share, while emerging markets like India and Latin America offer opportunities for growth. As investors navigate this complex landscape, it is essential to stay informed and adapt to changing market conditions to make informed investment decisions.
