As 2025 approaches, Capital Economics analysts said in a note this week that they expect a modest recovery for most major global economic after a difficult second half of 2024.
According to the house’s analysis, two key themes will shape advanced economies: the normalization of inflation and the easing of monetary policy, “both of which should provide some support to GDP growth,” the house said.
In addition, China’s recovery is expected to accelerate as fiscal stimulus kicks in, although ongoing trade tensions with the US and its allies may limit its growth potential.
However, several risks remain on the horizon, according to Capital Economics. The house highlights “the persistence of inflation, especially in Europe”, which could hamper real income growth and reduce the scope for policy easing.
In addition for the global economic, political transitions in various countries are said to create uncertainties, with potential risks around debt-financed stimulus and financial market reactions.
The house believes the rise of isolationist trade policies and a stronger backlash against immigration are also highlighted as concerns, potentially leading to stagnant inflationary outcomes in advanced markets.
While some fear a recession is on the horizon for 2025, Capital Economics remains cautiously optimistic.
He notes warning signs such as declining manufacturing surveys, rising unemployment and rising loan delinquencies, but stresses that these indicators alone do not guarantee a recession.
“Trends in credit, employment, retail sales and construction continue to paint a broadly positive picture,” Capital Economics said.
Overall, they predict a “soft landing is the most likely outcome” for 2025, although they are keeping a close eye on evolving risks and how it can affect the global economic.
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Written by D Fernando
