Economic Outlook for 2025

As 2025 approaches, Capital Economics analysts expect a modest recovery for most major global economies after a challenging second half of 2024.

Key Themes

According to the firm’s analysis, two key themes will shape advanced economies:
– Normalization of Inflation
– Loosening of Monetary Policy
Both themes should support GDP growth.

Additionally, China’s recovery is expected to gain momentum as fiscal stimulus takes effect, although ongoing trade tensions with the U.S. and its allies may limit growth potential.

Risks Ahead

Several risks remain:
– Stickiness of Inflation in Europe could hinder real income growth and reduce the scope for policy easing.
– Political transitions in various countries bring uncertainties, notably around debt-funded stimulus and financial market reactions.
– Rise of Isolationist Trade Policies and pushback against immigration could lead to stagflationary effects in advanced markets.

While some fear a recession in 2025, Capital Economics remains cautiously optimistic. Signaling factors like downturns in manufacturing surveys, rising unemployment, and increased loan delinquencies exist, but these indicators alone don’t guarantee recession.

Conclusion

“Trends in credit, employment, retail sales, and construction still paint a broadly positive picture,” said Capital Economics. They predict a “soft landing is the most likely outcome” for 2025 while monitoring evolving risks.