A year of fragile resilience in charts

If there were two words to describe the global economy in 2025, they would be fragility and resilience. The outcomes have generally been better than feared, especially in the wake of US President Donald Trump’s regular assaults on the rules-based international order. But cracks have been showing and everyone has been cautious.

The following 10 charts, many that are kept up-to-date on the FT’s Monetary Policy Radar site or its inflation tracker page, highlight this volatile, but ultimately benign, year.

A year of looser monetary policy

The year 2025 will be known as one of cheaper money, with policy interest rates falling in most countries. Following the extraordinary global tightening of policy after the world emerged from the Covid-19 pandemic facing strong demand growth, supply restrictions and higher interest rates, 2024 and 2025 have been years of some normalisation.

Cooling inflation has allowed central banks to ease policy rates down at a gradual pace, as they sought to find balance between activity and rising prices in the post-Covid economy.

The exceptions to this broad global trend have been Japan — which is converging on normality from a long period of too low inflation — and a few countries, including Brazil, that had excessive domestic stimulus, leading to continued inflationary problems.

Inflation not quite back to normal

The post-Covid inflation surge is now in the past, but its lingering effects are still being felt in many economies. For the Eurozone and Japan this has been beneficial, with headline and core measures now closer to their 2 per cent targets, having been below these levels before the pandemic. There have been no “last-mile” difficulties in inflation reduction here.

The chart below shows the annualised rates over six months and three months, demonstrating that more recent trends have also shown stability. This is most evident in the FT core measure of inflation, a statistically optimised amalgamation of a large number of core measures of inflation.

If the Eurozone and Japan demonstrate an almost perfect shift towards low and stable inflation, the US and UK have faced more difficulty. Headline and core US inflation have been stuck just below 3 per cent as Trump’s tariffs raised goods prices. This has created a tension between the price stability and maximum employment elements of the Federal Reserve’s dual mandate. Towards the end of 2025, the Fed judged that the last-mile inflation problem was likely to be temporary and continued to cut rates.

In the UK, a sharp fiscal tightening that encouraged companies to raise prices led to a similar inflation problem, which only eased right at the end of the year. The Bank of England cut rates gradually through this period, although there was significant dissent on the Monetary Policy Committee about the wisdom of the monetary loosening.

Stronger activity than feared

The most pleasing aspect of the 2025 global economy has been the surprising strength of activity in the face of US tariffs. Partly because they were not efficiently applied, partly because they were scaled back and partly because they did not lead to a more wide-ranging trade war, global growth forecasts have been regularly revised higher this year.

Global growth — projected by the IMF in October to be 3.2 per cent in 2025 — is similar to that in 2024, the 2026 projection, and the long-term average of 3.4 per cent since 1980.

Normality returning to labour markets

There has been much focus about rising unemployment during 2025 in the US and UK and falling unemployment in the Eurozone. But the more significant feature that applies to all these labour markets is a return towards pre-Covid normality.

The chart below of Beveridge curves for the US, Eurozone, UK and Japan highlights the link between job vacancies and unemployment. Economies will generally have higher unemployment when vacancies are low. But after Covid, they suffered a period of very high demand for workers (high vacancies) while having high unemployment, indicating that workers were not well matched for the available jobs.

This is now returning to normal everywhere and signals a shift towards normality in labour markets, whether the outcome has brought higher unemployment (US and UK) or lower joblessness (Eurozone). If anything, the Eurozone is converging towards the more dynamic labour markets of the US and UK.

Confidence in equities

Aside from the severe loss of confidence in April after Trump’s initial announcement of steep “reciprocal tariffs”, stock markets have performed very strongly, leading to frequent warnings that valuations were in bubble territory.

When valued in dollars, the S&P 500 performed the worst among comparable advanced economy indices, even if its gains were more than 15 per cent this year. Large European stocks saw their values rise over 30 per cent, partly due to better performance than in the US and partly due to the appreciation of the euro against the dollar.

A variety of fiscal ambitions

Lower interest rates, disinflation, stronger than expected activity, a continued normalisation of labour markets and strong equity returns demonstrate the resilience of 2025. From here, everything is a little more fragile, indicating growing risks to the outlook.

The pandemic forced most countries to run loose fiscal policy, but there was no clear ambition in most countries to tighten the ship in 2025. Yes, the UK imposed large tax increases, and many other European economies imposed smaller ones. Mexico and India planned significant improvements in their structural deficits.

But this was offset by a planned loosening in the fiscal positions of China, Brazil, Canada and Russia to offset perceived economic weakness. Overall, fiscal deficits remained high, with debt burdens becoming less sustainable in most large economies. The fiscal and monetary mix will become ever more important for central banks so long as this continues.

Budget credibility is weak

Countries that legislated to tighten fiscal policy in 2025 got little credit from government bond markets for their actions. In large part this was because their moves were seen to lack credibility. Throughout 2025, 10-year government bond yields were high and stable in the US and UK and low and rising in the Eurozone and Japan.

These trends came as short-term interest rates fell, increasing the gradient of the yield curve everywhere, as the chart above shows. This was most noticeable in Japan and continental Europe, where Germany’s fiscal expansion underpinned a rise in its own long-term borrowing costs, bringing them in line with other Eurozone economies.

A dollar round trip, a weak yen and a stronger euro

Compared with the period just before the 2024 US presidential election, exchange rates have moved significantly in 2025, although in ways that few predicted.

After Trump’s election victory, the dollar strengthened on anticipation of tariffs (which usually come with currency appreciation as imports are deterred). Instead, the US president’s duties initially scared investors so much that the dollar depreciated and the euro appreciated. For the dollar this was a round trip, ending 2025 close to its level in October 2024 against the currencies of US trading partners.

The euro ended the year about 5 per cent stronger, helping the disinflation process without severely undermining activity. Sterling was unusually a beacon of stability throughout this period, while the yen fell sharply again in the second half of 2025, putting pressure on the Bank of Japan to raise interest rates.

An improving macro mood

The sentiment of all articles in the Financial Times, weighted by their economic relevance, was volatile in 2025. But there was a distinct upward trajectory towards the end of the year.

Strong stock market performance, continued global economic resilience and interest rates gradually returning to normal have led to a more optimistic tenor in my colleagues’ reporting. This compares with a trough recorded in April, at a time of Trump tariff announcements and weak financial market performance.

The big question is whether this resilience will last long into 2026. Signs of improving productivity in the US are promising, while weak government finances and the remaining disinflation still pose risks.

The central banking aviary takes all sorts

With this rather mixed picture, it is not surprising that central banks have not co-ordinated their language at year-end.

The FT’s assessment of central bankers’ messages shows the Fed having become more dovish during 2025 as it moved from worries about tariff inflation to concerns about the labour market. The European Central Bank has become more neutral in accordance with its communication being in a “good place”. The BoE has been cutting rates while sounding hawkish, while the BoJ has been genuinely hawkish at year-end.

Let’s hope 2026 brings more of the resilience we enjoyed this year and less of the fragility we have had to endure.

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Central Banks is edited by Harvey Nriapia