Five questions for 2025

“In the last period we have started to glimpse some of those who will be Key themes of the new year. We have also witnessed an increase in bond returns, as investors try to understand what the prospects for inflation and growth are in a context characterized by very high levels of public debt, in which it will not be easy for governments to find governments the right balance between taxation and decisions of public spending“. It underlinesA Anthony WillisInvestment Manager of Columbia Threadneedle Investments.

Five questions for 2025

2025 – explains the expert – presents itself as a year in which it is possible that several scenarios occur; The Consensus is that it will be a discreet year for the American economy but weak for Europe and the United Kingdom and, in the absence of significant stimuli, a year of disappointments also for China. However, for 2025 it is possible to delineate other scenarios both bullish and bearish.

According to the Bullish scenarioPresident Trump has a positive effect on Markets: The threat of imposing duties is used as a negotiation tool rather than as a rigorous measure. From Europe, positive political news should come, with some signal of pragmatism by Germany on public debt, while in China the stimuli manage to restart the economy. They look at the equity markets, the expectations are of growth, without however reaching extreme assessments, and the growth of profits also continues, expanding. Finally, as regards monetary policy, central banks should be able to further reduce interest rates, thanks to the staining of inflationary fears.

The scenario Bearish, inVece, he expects a commercial war to be triggered caused by the duties imposed by Trump. The economic context will probably be staggered, with Europe stops in a climate of political stall. It probably, China, on the other hand, will face a stagnation. Due to persistent inflation, central banks will not be able to reduce interest rates to giving rise to a significantly more complex scenario for financial markets.

It is unlikely that the year to come falls perfectly into one or the other scenario, but it is more likely that it will be a mix of different scenarios, with some surprises along the way.

The United States and the Trump 2.0 presidency

We know from his previous mandate – explains the expert – that President Trump can change the mood of the market with a single post on social media, but it is also true that the market itself is able to influence a president who, during his first Mandate, measured his success with the performance of this.
Another lesson to be drawn from his first term is that Sometimes markets can react excessively to Trump’s comments And that it takes time to be able to separate the rhetoric from concrete legislative measures. The difference compared to 2016 is that Trump now has an experience as president behind him. The clear victory at the congress by the Republican Party, added to a Supreme Court with a clear republican orientation, actually deliver to the government a large margin of maneuver to implement its policies. The legislative uncertainty is high, but it is well known that Trump is willing to cut taxes, to spend more and to use duties as a political and economic weapon.

Biden’s presidential era He closed with US consumers In good health, thanks to the solid wage growth and the decrease in inflation, even if the memory of the inflation of recent years has cost Kamala Harris and the Democrats in the last elections. Families, helped by a solid labor market, by anti-covid subsidies that have implemented the inflation shock, by the positive impact of the inflation of the prices of the houses and the wealth effect of two consecutive rags of 20% for the S&P 500, they pour into decidedly good conditions.

The prospects for Europe

In 2024 European actions they recorded solid yields, Despite an anemic economic growth, the unknownness linked to energy prices (caused by the war in Ukraine), the growing concerns for public debt levels and the persistent weakness of the manufacturing sector. With the Russian-Ukrainian conflict that is potentially starting towards a turning point, it seems that it is possible to outline a better picture for Europe, or in any case to overcome low expectations.

In Francethe new government appears more stable than that of Michel Barnier’s short mandate, while Germany starts towards the elections of next month, which will probably see all the main parties face the theme of public debt. Greater political stability in France and Germany would be desirable at a time when Europe will face the challenges posed by the United States under the guidance of Trump, even if the past teaches us that Europe manages to be pragmatic and determined when It is about formulating policies in response to this type of obstacle.
Europe It could also benefit from the positive effects on the demand deriving from the stimuli launched in China. The penalty underlines that many of the European countries who have suffered more from an economic and political point of view during the sovereign debt crisis of a decade ago, such as Spain, Portugal, Greece and Ireland, are now recording robust growth and pour into decidedly better tax conditions than other countries in the area.

The challenges of China

As for the China still has to face multiple problemswhose source seems to be the real estate market, where 79 million tone or invented properties remain. Consumer confidence is very low and the savings rate is extremely high and well above pre-plants. China is also struggling with long -term obstacles, such as demographic drop and the decrease in the population of working age. President Xi repeatedly mentioned the fact that the government intends to enhance economic stimuli, statements that in September have made Chinese shares of over 30% in just seven days rise.
Also in this case, the role of President Trump will be decisive, because the imposition of high duties on China could in fact increase the probability that the latter introduces far more impressive stimuli to avoid the risk of being perceived as the “loser” of the commercial war.

United kingdom struggling with sticky inflation

In the UK the atmosphere has changed in recent months, With Prime Minister Keir Starmer who had a first demanding semester. The new Labor Government has taken note of the tax challenges that awaited him, but the aim of registering economic growth of 2.5% per year, driven by the increase in public spending and reforms on the side of the offer, in particular in the urban planning sector. However, economic growth is stalled, the trust of companies is weak and that of consumers, who are recovering from a period in which inflation has touched the highest thirty -year -olds, remains fragile. The tax legacy of the previous government has limited the ability of the current government to quickly change the economic narrative, but the presentation of the budget in October, which introduced an increase in taxation on companies, negatively engraved both on investments and on the plans of assumption. In addition, the balance was not sufficient to convince the Office for Budget Responsibility to modify the expectations on growth, and therefore the Chancellor Reeves now has a reduced maneuver margin to ease tax policy.

Although the government has promised not to further increase taxes, inflation is likely to remain sticky, as companies download the consequences of the increases in social security contributions and the minimum wages on consumers which, in turn, limits the potential positive impact deriving from the cuts of interest rates, since the Bank of England could find itself with a restricted action margin in the event that the inflation remained above the target.

The next moves of the central banks

The inflation shock of 2021-2023 has now run outas evidenced by inflation and close to 2% in the United States, the United Kingdom and the Eurozone. However, the data has recently returned to grow, since the effects deriving from the drop in energy prices have failed and the persistent growth of wages and the inflation of the services maintains inflation above the target of the central banks.

We expect further rates cuts during 2025but we are convinced that it will not take long before the central banks adopt a more awaited attitude. Currently the Federal Reserve is expected to cut the rates twice throughout the year, but this prediction could change. In the United Kingdom, sticky inflation could limit the Bank of England, but the 50 reduction base points expected by the end of 2025 seem reasonable. Given the smaller inflationary pressures and the weakest economic context, the Eurozone is more likely to record a number of rates of rates greater during the year.

Conclusions

In summary, “the context for 2025 prospects incertOr, but leaves room for a further rise in the markets, thanks to interest rates still falling, to the discreet form of the companies, and to assessments that, except for some securities, do not appear extreme. The major unknowns concern politics.
At the moment, we continue to overlap the actions and to submit liquidity. Instead, we are neutral on bonds, with a preference for high performance bonds, followed by those investment grade. On a geographical level we have no significant preferences, except for an overweight on the US tax stock which, for now, we consider less exposed toof adversity with respect to other regions “.