The global economy is forecast to slow marginally this year, according to the latest estimates provided by the International Monetary Fund (IMF). Global growth is forecast to be 3.0% this year and 3.1% in 2026 (both marginally below the long-term trend rate but slightly above the IMF’s previous forecasts). In the IMF’s words, ‘the global economy has continued to hold steady’, with recent ‘macroeconomic data turning out better than expected’. While this year’s lower growth has been due to what the IMF has termed ‘the swift escalation of trade tensions and extremely high levels of policy uncertainty’, it now notes that ‘a new wave of credible trade agreements could usher in a broader reform momentum to lift medium-term growth’. Growth in the advanced economies is forecast to be 1.5% this year, with ‘risks to the outlook remaining tilted to the downside’.

In the case of the US, growth rebounded in the June quarter after falling in the March quarter, to be up 0.6% for the first half of 2025. The IMF is forecasting growth of 1.9% for the whole of 2025 and 2.0% for 2026, although the US administration is aiming for a higher rate of growth than this, with fiscal stimulus, reduced regulation and incentives for investment aimed at propelling growth going forward. Growth for the euro zone is forecast to remain weak (1.0% this year and 1.2% in 2026), although higher than in 2023 and 2024; while Japan is forecast to grow by only 0.7% this year and 0.5% next year. With annual US inflation coming in at an elevated 2.7% in June, the central bank (the ‘Fed’) once again resisted cutting rates at its 30 July meeting.

The Australian economy remains weak, with growth of a mere 0.2% in the March quarter, after growth of only 1.3% in 2024. On a per capita basis, the economy sank back into recession with a contraction of 0.2% after minuscule growth of 0.1% in the December quarter, which in turn followed seven consecutive quarters of contraction. Elevated interest rates have kept a lid on growth, as the Reserve Bank (RBA) has continued to fight inflation. However, on 20 May, the RBA cut its cash rate by 0.25% to 3.85%, following a 0.25% cut in February after the annual inflation rate had moved into its target range (2% to 3%). Given the weak state of the economy, with no productivity growth, a further rate cut is expected at the RBA’s 12 August meeting.

Most share markets were on a broadly upwards trend from October 2023 right through 2024 on the assumption that interest rates had peaked and would soon begin to be reduced. This year has so far seen high volatility, especially after the US move to introduce unprecedented tariff hikes on most imports. Up to 30 July, market movements have included rises across most markets, including 8% for the broad US market (S&P500) and 9% for the technology-focused Nasdaq, 12% for the UK, 22% for Germany, 7% for France, 2% for Japan, 4% for India, 8% for China and 7% for Australia.

Major sovereign bond markets have been volatile for some time, with yields (interest rates) rising and falling in line with the outlook for inflation. The US 10-year Treasury bond yield fell to a record low of 0.54% on 9 March 2020 during the pandemic but touched 5.0% in October 2023 before sliding down, then rising again. It was 4.37% on 30 July this year. Similarly, the Australian 10-year bond yield was 0.57% on 8 March 2020 but was 4.26% on 30 July this year. Some bond markets could see yields fall further (and prices rise) over coming months if growth remains soft and if inflation continues to fall back towards targets.

Fiducian’s diversified funds are currently above benchmark for international shares, slightly above benchmark for listed property and around benchmark for domestic shares. Exposure to bond markets is close to benchmark, while cash holdings have been lowered.

Disclaimer: The information in this document is given in good faith and we believe it to be reliable and accurate at the date of publication. Fiducian Investment Management Services Limited (Fiducian) ABN 28 602 441 814 and its officers give no warranty as to the reliability or accuracy of any information and accept no responsibility for errors or omissions. The information is provided for general information only. It does not have regard to any investor objectives, financial situation or needs. It does not purport to be advice and should not be relied on as such. Investment and tax advice should be sought in respect of individual circumstances. Except to the extent that it cannot be excluded, Fiducian accepts no liability for any loss or damage suffered by anyone who has acted on any information in this document. Past performance is not a reliable indicator of future performance and we do not guarantee the performance of the Funds or any specific rate of return. Potential investors should also obtain and consider the relevant Target Market Determination (TMD) and Product Disclosure Statement (PDS) (available from your financial adviser and via fiducian.com.au) before making a decision about whether to acquire or continue to hold any financial product. Fiducian Investment Management Services Limited is an Australian Financial Services Licensee (AFS Licence No. 468211).