2025 Outlook
A summary of 2025 Outlook reports
Big banks are always gathering data and modeling in order to predict future trends, they even give punctual quantitative estimations of things like Real GDP growth, market earnings, etc. As said in previous articles, individual predictions should be taken with a grain of salt, no one knows the future, and if they did they would not be telling everyone about it. But consensus of predictions can be used as rough anchor to understand market sentiment (which self-fulfilingly determines at least some part of actual performance) and an average of what several good financial models tell us might happen.
These reports are quite large and thorough, so a simplified version of this comes below from Rodrigo Roman, a great Independent Financial Journalist, CIO of one of the largest wealth management firms in Mexico. A great follow to learn about finance.
Some of the punctual consensus predictions on growth from consensus are listed below (SourcesBBG->DB, **Banxico):
General Takeaways
Overall, economists predict non-trivial real growth. At least, a non-increase in interest rates, inflation to be lower and governments to keep adding debt to their balance sheets.
General topics most reports include talk about:
More optimistic views on the overall growth, compared to last year, leaving aside some fears of recession on some specific economies. Particularly due to decreasing inflationary pressures which would help decrease or not increase rates.
Trade Wars and other Geo-political tensions could significantly reshape trade, which will likely bring a lot volatility to general markets while equilibriums readjust. New equilibriums might imply some important challenges and/or strain on economies, particularly: The US, China, Europe, Mexico, Canada and South Asia.
Artificial Intelligence (AI) and other technological innovation is considered to be an important trend to boost overall productivity in the short term and really re-shape a huge part of our daily lives on the long term. Not just another over-hyped software technology.
For all of these trends, general portfolio advice includes:
Diversify portfolios across geographies, asset sizes and asset classes
Focus on long-term drivers of value
Prepare for higher volatility
Don’t have too much cash in hand but search for hedging asset classes
Now, disagreements also exist within these reports, where the most relevant ones are:
Stabilized inflationary rates through the year vs. high inflation increase risk due to policy instability and uncertainty (which includes tariffs, forex risk, etc.)
The magnitude of growth, predictions go through ranges between 2% - 4% for global growth
US Outperformance vs. Larger growth offshore with low PE markets
South Asia weakening given Chinese economic difficulties vs strengthening due to more regionalization. Mostly centered around the potential of Chinese recovery policy.
Below are more in depth insights for more progressive complexity.
Agreements & Disagreements Across Regions
United States
Agreement: The US economy is expected to remain resilient, supported by a strong labor market and sustained capital investment, particularly in AI and infrastructure. Monetary policy is likely to remain restrictive until mid-2025 before transitioning to easing. Of course, risks of increasing inflation or even recession are not 100% out of the picture.
Disagreement: While some highlight US equities as a key driver due to their leadership in innovation and robust earnings, other reports suggest potential overvaluation compared to opportunities in non-US markets. For example, South Korea, LATAM (Brazil), Japan, etc.
China
Agreement: China is forecasted to experience a policy-driven recovery, focusing on domestic growth through fiscal and monetary stimulus. This recovery is expected to stabilize market sentiment within the country. Recession risks are still considered to be non-trivial and the impact of tariffs is something banks are considering likely happen.
Disagreement: Opinions diverge on whether China’s recovery will meaningfully impact global markets. Some reports (e.g., IMF) emphasize limited spillover effects, while others are more optimistic about China’s potential to reinvigorate regional growth. Additionally, opinions diverge on the magnitude, objective and scope of the tariffs and their impact on the Chinese Economy. Some are looking more into internal demand strengthening while others into regionalization being the stronger trend
Europe
Agreement: Europe is projected to recover gradually, driven by central bank rate cuts and structural reforms. The focus on green energy transitions and sustainable investments remains a key driver.
Disagreement: While some reports suggest European equities are undervalued and positioned for growth, others highlight structural challenges, such as high energy costs, demographic pressures and political instability could limit recovery.
Japan
Agreement: Japan’s markets are expected to benefit from wage growth, corporate reforms, and a strong focus on domestic reflation. These factors, along with increased buybacks, position Japan as a bright spot among developed economies.
Disagreement: Some reports caution that a strengthening yen could weigh on Japan’s export-heavy sectors, potentially offsetting the benefits of domestic-driven growth.
Agreements & Disagreements Across Asset Classes
Equities:
Agreement: Equities, especially in technology and healthcare, are expected to perform well due to innovation in AI and demographic trends like aging populations. Non-US markets are also highlighted for their potential upside due to favorable valuations and structural reforms.
Disagreement: While some reports favor US equities for their resilience and leadership in AI-related growth, others emphasize opportunities in European and Japanese markets where undervaluation and structural changes provide strong tailwinds. This is to be considered to be a factor not if or not to diversify regionally, but by how much.
Fixed Income
Agreement: Fixed income is still seen as an attractive opportunity in 2025 higher yields, decreasing rates and the rise of Private Credit have created an interesting fixed income market.
Disagreement: There is a split between favoring high-yield versus investment-grade bonds. While some caution against high-yield bonds due to credit risk, others see potential in high-yield segments during growth reaccelerating. The same applies for LATAM and Emerging Markets Credit and Sovereign Debt which are seeing the higher rates for the moment.
Alternatives
Agreement: Alternatives, such as private debt, private equity, venture capital and hedge funds, are widely recommended as tools for diversification and as a hedge against market volatility.
Disagreement: Some favor private debt for its lower reliance on leverage, while others suggest hedge funds as a better fit for navigating uncertain market conditions. These as ways to circumnavigate the expected volatility from a restructuring trade environment.
Commodities
Agreement: Commodities like gold are broadly viewed as a hedge against geopolitical risks and macroeconomic uncertainty. (I personally do not like gold)
Disagreement: Opinions diverge on energy and base metals. Some are bearish on oil and base metals due to expected weaker demand and unilateral increases in production across several regions, while others point out geopolitical tensions as a driver of higher prices given compromised trade routes and trade policy as a potential mitigator of these effects.
Report Particulars
Interesting points that I found in specific reports are:
JPMorgan: De-coupling inflationary paths, central bank policy, government policy and disparities on technological development fueled by infrastructure will create a divergence on business cycles across world regions
JMP prefers US Equities over European and Emerging Markets. This because of diminishing inflation, healthy demand (labor market), AI productivity and boost in dealmaking. Additionally, claiming Europe has structural issues and Emerging Markets still struggle with higher inflation, limiting potential cuts in rates. Japanese equities seem attractive. Key US risk case comes from reflation due to policy, that could see, even, an increase in rate (trade + spending + migration policy).
Goods inflation seems to be underestimated, given the double whammy of pandemic related goods inflation will reverberate for longer through the system, only being exacerbated by a, currently low, and decreasing global trade and policy synchronization
Deutche Bank: Stocks should be the core of our investment portfolios given strong corporate profits and improving infrastructure that can boost them up. Be weary of US large cap valuations, they remain very high and a rebalancing into other segments, classes or sectors could bear an important weight on them. A barbell strategy with growth stocks as core of portfolio seems best.
CITI: Remain mostly or fully invested through the year, do not hold a lot of Cash & Equivalents. Diversify all along, including heavily into alternative investing, non-US jurisdictions with low valuations and good structural reforms. Focusing specifically in long term growth drivers like AI, healthcare, robotics, climate technology (including Agritech) and US China Polarization
Eurasia Group: This "geopolitical recession" is exacerbated by the West's failure to integrate key players like Russia and China into a cooperative global framework. The resulting power void is predicted to fuel instability, rogue state activity, and potential conflicts, making global governance an even more critical risk.
IMF: The IMF introduces the idea of a triple pivot in global policy, moving from inflation control to rebuilding fiscal buffers and addressing long-term structural issues. Despite achieving significant progress on inflation, risks such as prolonged monetary tightening, financial market volatility, and geopolitical tensions could derail recovery efforts, underscoring the complexity of policy trade-offs in 202
Apollo Global 12 short points on risk assessment:
