What is the 2025 Outlook for the Global Economy?

As the year 2025 approaches, analysts from Capital Economics anticipate a modest recovery for many major global economies following a challenging second half of 2024.

Their analysis identifies two primary factors that will influence advanced economies: the normalization of inflation and the easing of monetary policy. Both are expected to provide some support for GDP growth.

In addition, China’s recovery is predicted to strengthen as fiscal stimulus measures take effect, although ongoing trade tensions with the U.S. and its allies could constrain its growth potential.

However, Capital Economics warns that several risks loom on the horizon. They highlight the persistent nature of inflation, particularly in Europe, which could hamper real income growth and limit the ability for policy easing.

Political changes in various countries may also introduce uncertainties, raising concerns about debt-funded stimulus and potential reactions in financial markets.

Furthermore, the rise of protectionist trade policies and increased opposition to immigration are seen as potential threats, which could lead to stagflationary conditions in advanced markets.

While some worry about the possibility of a recession in 2025, Capital Economics remains cautiously optimistic. They acknowledge warning signs such as declines in manufacturing surveys, rising unemployment, and increasing loan delinquencies but point out that these indicators alone do not necessarily foreshadow a recession.

Trends in credit, employment, retail sales, and construction still convey a generally positive outlook, according to the firm.

Overall, Capital Economics forecasts that a “soft landing” is the most probable outcome for 2025, while they continue to monitor emerging risks closely.