The first quarter of 2025 will see a lot of activity within global markets with the anticipation of what Trump 2.0 will bring and the fallout from his policies and erratic nature.
With the prospect of global trade wars on the horizon, inflation could remain trickier to keep down than anticipated due to Trump’s “America First” policies. There is much to keep economists busy with their predictions and calculations.
Most economists forecast stronger growth this year in the US than in Europe and China where the largest tariffs are expected to be up to 60%. The UK is seen to be better insulated from tariffs thanks to its large services sector.
The Bank of England expects inflation to peak at 2.8% by this summer before slowing to 1.8% by the end of 2027. Despite these inflation concerns, it is unlikely to prevent the Bank of England from reducing interest rates especially if the economy deteriorates, when rates would fall much faster.
In the US we expect further rate cuts in the coming months. As we have said previously, a lower interest environment is good news of stock markets as this lessens the debt burden for business and increases acquisitions and mergers activity, which, in turn, benefits shareholders and investors.
Stocks are expected to rally in the UK, albeit not at the same pace as the US, they are predicted to be better than 2024. Some analysts have argued that the “prevailing gloom” around the UK means that UK equities look rather cheap on an earnings and yield basis, especially when taking a direct comparison against US equities which trade far higher.
European markers are expected to lag behind the other benchmark equity markets. Although they are expected to provide positive returns, they will be on the low side, due to the fallout of tariffs and falling consumer consumption.
Taking the above into consideration, the European Central Bank is expected to cut interest rates more rapidly than the Federal Reserve in the US. The Fed is seen to have little room to trim rates with a strong US economy, sticky inflation and price-boosting policies by Trump.
Moving into commodities, oil is predicted to fall further in 2025 as slowing demand leads to an already expanding surplus. Iron ore prices are also predicted to fall; however, gold should remain at its elevated levels with strong demand from both central banks and retail investors.
Overall, there remains a consensus of positive growth this year, however, as always, there are potential headwinds with new administrations, sentiment and the ongoing geo-political environment which can all weigh on global growth prospects.