The first half of the roaring (20)20s has been a complex one for the financial markets.
We’ve dealt with a global pandemic, huge political shifts, and geopolitical tensions have heightened between big players in Europe, the USA, and the Middle East. There’s also been a global energy crisis and substantial inflation, which made the past four years interesting to say the least.
However, 2024 brought stabilisation with lower interest rates and reduced inflation, and economic growth started to go in the right direction. In this article, we’ll explore what 2025 might hold for the global economy and how the big changes might affect your finances.
1. Global Growth
Inflation typified the first half of the 2020s and forecasts were gloomy for the next five years with interest rate hikes predicted by lots of analysts. However, the global economy seems to have outperformed these forecasts for the most part, with interest rates dropping in England, The US, and Europe.
There’s still a way to go before rates drop to pre-pandemic levels, but the decrease is a reason for optimism for 2025 and the medium-term.
2. A boom for US equities
Donald Trump is unashamedly pro-American and while US stocks have performed incredibly well over the past ten years, 2025 could be a bumper year.
Why? Because Trump sees the US stock market as the most important barometer of economic performance and has promised to reduce corporate taxation and introduce other policies that favour American businesses.
He has also mentioned how he will cut bureaucratic processes to facilitate innovation and efficiency in the US, which means this year is probably a good one to invest in American companies, particularly in technology and traditional energy.
3. A Move Away From the Magnificent 7?
For those who don’t know, the Magnificent 7 includes the largest American companies – Nvidia, Microsoft, Alphabet, Meta, Amazon, Apple, and Tesla. These have consistently delivered incredibly high earnings over the past five years and in the year just gone, they outperformed the rest of the S&P combined by around 30%.
While this trend looks set to continue in 2025, other companies are closing the gap and many experts predict that the Magnificent 7 will see growth of up to 18% in 2025, compared to 12% for the rest of the S&P.
4. Global Debt Concerns
Government borrowing understandably spiked during the pandemic to manage the cost of lockdowns on global economies. However, while this move made sense at the time, the cost of servicing the debt has increased, so record-low interest rates seem unlikely in the next twelve months, although they should still decrease.
While the outlook is cautiously optimistic, global debt could impact leading economies and create uncertainty for investors.
5. Geopolitical Complexities
From Eastern Europe to the US, China, and Israel, geopolitical tensions have been rising for the past few years and don’t look set to ease much in 2025.
Potential peace in certain regions is extremely fragile and with Trump coming in with an isolationist approach, many experts fear the worst. However, he has made it clear he thinks he can arrange a ceasefire in the Russia and Ukraine war.
Whether that’s true remains to be seen, and many fear his tariffs will do more harm than good for the global economy, raising prices in the US and causing instability around the world.
Conclusion
As is usually the case, 2025 looks set to be an unpredictable one from a financial perspective. However, with a diversified investment portfolio built for the long term, individuals can maximise their wealth in 2025 and beyond with the right advice and strategy.
For advice about your wealth and what 2025 might mean for your finances, call 020 8366 4400 or email enquiries@cedarhfs.co.uk.