2025 Perspectives

According to OECD Economic Outlook (OECD, 2024), the global economy shows resilience, with inflation steadily easing and signs of recovery emerging in global trade. The decline in inflation is bolstering real household income growth and expenditure, although consumer confidence in many countries has not yet returned to pre-pandemic standards. Labour market pressures are gradually subsiding, while unemployment rates remain close to historic lows. Although real interest rates continue to be restrictive, lower nominal yields have sparked initial signs of recovery in housing and credit markets sensitive to interest rate changes.

According to the same source, global GDP growth is projected to be 3.2% in 2024 and 3.3% in 2025 and, in Portugal, real GDP growth is projected to reach 1.7% in 2024 and rise to 2.0% in 2025. OECD GDP growth is forecasted at 1.9% in 2025, while non-OECD GDP growth may slow slightly, with emerging Asia remaining the key driver of global growth. It is expected that central banks will further reduce monetary policy rates as inflation decreases and labour market pressures ease. By 2026, real interest rates in most economies could approach estimated neutral levels. Meanwhile, fiscal policy in many OECD countries is anticipated to tighten during 2025 and 2026, creating slight headwinds for economic growth.

OECD (2024) presents, among others, the prospects below for some major economies:

– In the Euro Area, GDP growth is projected to increase from 0.8% in 2024 to 1.3% in 2025 and core inflation is projected to reduce from 2.9% in 2024 to 2.4% in 2025. It is expected that investment will be supported by lower policy interest rates and the spending of the Recovery and Resilience Facility funds, and private consumption growth will benefit from tight labour markets and further disinflation. However, moves towards a more restrictive fiscal stance will slow down growth in some member states.

– In the United States, GDP growth is projected to be 2.8% in 2024 and 2.4% in 2025. On the other side, in Canada, it is expected a recovery in business investment and GDP growth is projected to be 1.1% in 2024 before rising to 2% in 2025. Inflation in these economies is anticipated to continue to moderate, with both headline and core inflation projected to be consistent with central bank targets by 2026.

– In China, economic growth is projected to slow down from 4.9% in 2024 to 4.7% in 2025. Consumption growth is expected to remain steady but subdued due to precautionary saving and continued weakness in real estate markets, helping to keep inflation low. Investment growth will be bolstered by monetary policy easing and increased government spending.

Based on this report (OECD, 2024) there are some trends that should be highlighted:

– After the weakness observed in 2023, annual global trade volume growth is expected to rise to 3.5% in 2024 and 3.6% in 2025. This growth is supported by increasing trade among emerging-market economies, along with a recovery in investment and consumption growth in large advanced and emerging-market economies. While the overall trade intensity of global growth during 2024-26 is projected to be slightly stronger than the pre-pandemic decade’s average, this trend is not uniform across all economies. Trade intensity is generally lower in advanced economies, particularly in Europe, but significantly higher in China and several other emerging-market economies.

– Employment growth in OECD countries is expected to stay robust but slow over the next two years. In the median OECD country, the annual pace of employment gains is forecast to average 0.8% in 2025-26 compared to 1.2% in 2023-24. As employment growth is expected to grow at a similar pace to the labour force, unemployment rates are anticipated to remain stable at their current low levels in most economies.

– Global current account balances are anticipated to remain relatively stable in 2025-26 when comparing to 2024, with the United States expected to sustain a significant current account deficit, while China’s current account surplus is forecast to increase further following a sharp uptick in the third quarter of 2024.

– It is estimated that the contribution of China amounts to over one quarter of global economic growth in 2024 and in 2025 is expected to have a similar contribution in the baseline projections and, therefore, developments in China are decisive for global growth projections.

Overall, it seems to us that the advantage in today’s environment is the position of the US economy in the cycle (despite the question marks of how Trump administration will deploy its programme and the implications on inflation and economic growth). The Chinese economy is supported by the stimulus package implemented by the authorities and despite the challenges in Germany and France the European economy is not doing so badly.

On a different perspective it’s also important to emphasize, as pointed out by EFG, in its report Outlook 2025, that the rapid adoption of generative AI will be an important theme of 2025 and, as it does, electricity demand will surge and nuclear power will become more attractive. It is mentioned that: (i) the uptake of generative AI has surpassed the adoption rate of the internet when it was launched; (ii) generative AI is anticipated to become a mainstream technology; and, (iii) the United States leads in investing in AI, significantly ahead of Europe and China, which provides a competitive advantage. On the other side, this raises energy consumption concerns as AI is energy-intensive, with searches powered by AI consuming up to ten times or more electricity than standard searches. This growth underscores the need for increased electricity generation and nuclear power is identified in this report as a solution and it is also highlighted that countries investing in nuclear power, such as China, are positioned to gain competitive advantages in meeting energy demands (EFG, 2024).

In 2025 the theme of Big Data will continue to be a very hot topic, as companies with access to data have a competitive advantage in the era of AI. The increasing geopolitical tensions in a macroeconomic context more favorable to protectionism will put economic resilience topic on the Agenda of the business leaders. This situation will create an environment in which companies better prepared to withstand further disruptions to the global production chain will be better positioned to navigate the challenging context ahead.

Sources:
EFG (2024), Outlook 2025, Our top 10 themes for the year ahead, December
OECD (2024), OECD Economic Outlook, Volume 2024, Issue 2, No. 116, December