Investing.com — Goldman Sachs updated its economic forecasts, reflecting changes in monetary policy expectations and global growth trends for 2025.

Analysts revised their projections for US Federal Reserve policy, removing an expected rate cut in January.

The terminal rate is now expected to fall within the 3.5-3.75% range, compared to earlier estimates of 3.25-3.5%. The brokerage expects the next 25 basis-point cut to take place in March, followed by further reductions in June and September.

US economic performance is expected to continue to outperform its developed market peers, supported by strong real income growth and higher productivity gains.

Goldman forecasts US real GDP growth of 2.6% year-over-year in 2025, along with a gradual decline in the unemployment rate to 4.0% by the end of the year.

Core inflation is expected to ease to 2.4% in December, driven by softer housing costs and wage pressures, despite upward pressure from tariff adjustments.

Globally, Goldman Sachs expects a year-on-year real GDP growth rate of 2.7%, supported by increases in disposable household incomes and easing financial conditions. However, structural issues in the Eurozone and China may slow momentum.

In the Euro area, real GDP growth is forecast at a modest 0.8%, constrained by high energy costs, competitive pressures from China, and fiscal consolidation.

The European Central Bank is expected to continue cutting rates until mid-2025, potentially reaching a policy rate of 1.75%.

In China, the outlook remains cautious despite recent policy easing. Real GDP growth is expected to slow to 4.5% in 2025 due to weak consumer demand, challenges in the property sector, and higher US tariffs.

Long-term risks are amplified by unfavorable demographics and the global trend of diversifying the supply chain away from China.

Geopolitical developments, including US tariff policies under the new administration and continued uncertainty in the Middle East and Ukraine, remain critical factors to watch.

Analysts note the potential for major impacts on the economies of Europe and China if tariffs across the board are implemented.

The updates highlight a complex global economic environment where growth opportunities are constrained by persistent structural challenges and geopolitical uncertainties.