2025 Outlook: Rough Weather Ahead For Markets, Global Economy? Expert Take

As we all are set to usher in 2025 certain macroeconomic themes are likely to drive the year and the investments going forward. Neil Shearing, Group Chief Economist of CapitalEconomics has highlighted some themes that are going to drive the economic landscape in 2025.

Global Economy: Resilience Amid Challenges

Economist Shearing argues that the global economy will face a volley of challenges and the economy will “muddle through” with relatively low growth. Among a raft of challenges Shering highlighted, the biggest one is the protectionist policies likely to be embraced by the US once Trump takes over as president.

According to the experts, the US will take a more protectionist stance, and while the tariffs may cause some economic turbulence, the overall impact on global growth is expected to be more modest than some fear.

Interest Rates: Gradual Reductions

Shearing predicts that the central bank will continue lowering interest rates in 2025. But he also cautioned that major economies will take a cautious approach.  As per his understanding and outlook, the central banks will slowly go for rate cuts. By the end of 2025, the US Fed is likely to bring down the rates between 3.50 per cent to 3.75 per cent. But it's not that all central banks will go for rate cuts, there are some exceptions as well. As per experts, the Bank of Japan is likely to go for a rate hike in 2025.

Global Trade: No Collapse but Challenges

Once Trump will take over as president of the US, the protectionist measures likely to be taken by him will impact trade across the world. According to Shearning, the impact of tariffs will be more contained. He believes that trade is unlikely to collapse in the way many are predicting. According to experts, global trade is likely to witness modest growth in 2025.

Fiscal Constraints: Government Budgets

Fiscal concerns would weigh heavily on governments in 2025, Shearing cautioned. Advanced economies would still suffer from large deficits and rapidly rising debt levels, forcing fiscal sustainability to become one of the key issues. While Shearing does not predict a series of fiscal crises, the likes of France and Italy are certainly at risk of their fiscal positions being called into question. And then, of course, there is the US, whose ballooning debt is putting to the test the "exorbitant privilege" of being able to borrow in its own currency.

Geopolitics: Shifting Risks

Geopolitical risks will remain in the news in 2025, but Shearing believes macroeconomic impacts will often be exaggerated. Rising tensions- especially with China and throughout the Middle East- are unlikely to spill over and affect world markets.