Donald Trump's outright victory in November's US presidential election is reshuffling the deck for 2025. The soft landing scenario hitherto envisaged in the United States is likely to give way to reflation next year. Moreover, growth in the world's largest economy, which has supported the rest of the world in recent years, is likely to be more protectionist. Europe and China will have to come to terms with this policy, which is likely to weigh on their growth and inflation prospects as a result of the slowdown in foreign demand. Beyond that, the geopolitical context (Ukraine and the Middle East) could be likely to create headwinds for the global macroeconomic environment as a whole.

American exceptionalism

Expansive fiscal policy and rising customs duties will be, at first glance, the centrepieces of economic policy in Trump's second term. But at a time when the economy is doing well (robust consumer spending, solid private sector balance sheets, low unemployment), these measures, which reduce the risk of recession, increase the risk of a sharp rise in inflation. We believe that the tariffs envisaged (60% for China and 20% for the rest of the world) are maximum rates used as a basis for negotiation. As a result, they could end up being well below expectations.

On the fiscal front, the new administration's extension of the Tax Cuts and Jobs Act (TCJA) is likely to push the deficit to an exceptional 8% of GDP. While this will undoubtedly benefit nominal GDP growth over the coming year, the sustainability of such a policy stance is questionable in the longer term. In particular, if the policy on customs barriers proves aggressive, the risk of stagflation increases over the coming quarters. In addition, the reduction in net migration would be likely to slow growth while sending wages and services inflation into an upward spiral.

In light of these support measures, the risk of recession is well and truly averted... Unless the Fed continues its easing cycle. And the likely final rate of easing is now higher than before the election. In these circumstances, we believe that monetary easing will continue in one form or another until the first effects of the measures announced (tariffs, immigration, tax policy).

Europe's structural challenge

Stagnant almost since 2023, the eurozone economy is facing a series of cyclical and structural challenges. The year 2025 should be marked by a cyclical recovery combined with a fall in inflation and interest rates, helping to boost investment and consumer confidence. Higher real disposable income and easier financing conditions should begin to release the high excess savings to stimulate consumption growth. However, potential tariffs imposed by the US are a risk that could reduce growth by half a percentage point. On the monetary front, the European Central Bank (ECB) is expected to cut rates rapidly to 2% and then to 1.5% by the end of next year. Nevertheless, an aggressive policy from the US is likely to prompt the central bank to accelerate and increase the scale of its easing.

China's political pivot

China's quest for a slower but more sustainable growth model, focused on domestic consumption and high-end manufacturing, is progressing. The Politburo's political turnaround since last September marks a decisive step towards resolving the problems that have weighed on domestic demand (property, local government, consumer confidence). In these circumstances, all eyes will be on how the measures develop over the coming months.

The question is whether the level of growth China needs can be achieved assuming the US imposes high tariffs. Admittedly, the manufacturing sector is modernising, which is helping to sustain growth through increased investment and external demand. However, domestic consumption has yet to pick up significantly and, although the housing market is stabilising, 2025 does not augur a return to strong growth. The consensus is that growth will not exceed 5% next year.

China's economy will be driven by new growth engines that could benefit from greater political support. Urbanisation could be accompanied by improvements in infrastructure and connectivity between cities. The energy transition, a priority for Beijing, should benefit from incentives to save energy in all areas (household appliances, electric vehicles, etc.). Finally, additional efforts could be devoted to reducing local authority debt.

Go to our website to discover our outlook for the various asset classes: Outlook 2025.

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