Economy in Brief: March 2025

US equity markets have underperformed relative to global peers in recent weeks, as investor sentiment has deteriorated in response to weaker-than-expected growth data and growing concerns about the Trump administration’s economic policies (chart 1). The administration’s renewed push for tariffs, alongside fiscal expansion and tighter immigration policies, has fuelled stagflation fears, compounding the uncertainty surrounding the Fed’s next steps. This week, the Fed opted to keep its policy rate on hold but acknowledged rising downside risks by revising its GDP growth forecast lower, signalling caution about the economic outlook despite lingering inflation concerns. Foreign capital flows into US assets and their impact on the strong dollar are also showing signs of softening, as trade tensions and policy unpredictability raise questions about long-term US economic stability (chart 2). Meanwhile, global imbalances remain entrenched—China and Germany continue to run high savings rates, while the US remains structurally dependent on external capital to finance its deficits (chart 3). Trump’s efforts to rebalance trade through protectionist measures may struggle to overcome these deeper economic realities, particularly as demographic trends reinforce the service-oriented nature of the US economy and constrain China’s transition to a consumption-driven model (chart 4). Other central banks are also caught in this evolving landscape—wage growth is slowing in Europe, but lingering inflation risks suggest that rate-cutting cycles could remain uneven (chart 5). For China, where the property market downturn has been a major drag on growth, recent policy measures have offered signs of stabilization, but the road to recovery also remains uncertain (chart 6). With the US economy at risk of slowing more sharply than anticipated, central bank policies finely balanced, and China’s long-term growth trajectory still in question, the coming months could prove pivotal in determining whether global financial markets find their footing or remain mired in volatility.

• Sales remain up from September low.
• Sales patterns vary from state-to-state.
• Median sales price recovers m/m.

• Goods deficit widens to nearly largest in three years. Services surplus increases to largest in five years.
• Balance on primary income returns to positive territory.
• Secondary income balance turns slightly less negative.

• The headline index posted a second consecutive decline to a still positive 12.5.
• Shipments and orders fell markedly though remained positive.
• In contrast, employment jumped to 19.7, the highest reading since October 2022.
• Expectations six months ahead collapsed, falling to 5.6, its lowest reading since January 2024.

• Weekly claims are trending up.
• Continuing claims rise and also are trending higher.
• Insured unemployment rate is steady.

• FOMC Committee expects funds rate to gradually fall over forecast period.
• Projections of economic growth are lowered, but expected inflation is raised.

• Applications for loan refinance drop sharply.
• Mortgage rate increase is first in nine weeks.
• Decline in average loan size reverses earlier gain.