As 2025 approaches, analysts at Capital Economics said in a note this week that they expect a modest recovery for most major global economies following a challenging second half of 2024.
According to the firm’s analysis, two key themes will shape advanced economies: inflation normalization and monetary policy easing, “both of which should offer some support to GDP growth,” the firm said.
China’s recovery is also expected to accelerate as fiscal stimulus takes effect, although ongoing trade tensions with the United States and its allies may limit its growth potential.
However, according to Capital Economics, several risks remain on the horizon. The firm highlights “inflationary rigidity, especially in Europe”, which could hamper real income growth and reduce the scope for policy easing.
In addition, political transitions in several countries are said to pose uncertainties, with potential risks around debt-financed stimulus and financial market reactions.
The firm believes that rising isolationist trade policies and greater resistance to immigration are also concerns, which could lead to stagflationary effects in advanced markets.
Although some fear a recession is looming in 2025, Capital Economics remains cautiously optimistic.
They point to warning signs such as falling manufacturing surveys, rising unemployment and increasing loan delinquencies, but stress that these indicators alone do not guarantee a recession.
“Trends in credit, employment, retail sales and construction still paint a broadly positive picture,” Capital Economics said.
Overall, they predict that “a soft landing is the most likely outcome” by 2025, although they are closely monitoring the evolving risks.