Onome Amuge
The global economy is expected to maintain a steady growth trajectory in 2025, underpinned by lower inflation and wage growth, resulting in increased real income, and heightened business confidence due to lower interest rates, according to a recent projection by Cordros Securities analysts.
However, while the economic outlook appears promising, the analysts cautioned that some economic risks lurk on the horizon. The foremost risk is a potential policy shift in the U.S. under a second Trump administration, which could bring with it protectionist measures, including tariffs and immigration restrictions, potentially leading to inflationary pressures and monetary policy uncertainty.
Other risks identified include volatile commodity prices driven by geopolitical tensions and climate change, a possible ripple effect from prolonged monetary policy tightening, and weaker-than-expected economic activity in China, the world’s second largest economy.
The sub-Saharan Africa region is projected to see improvement in its economic performance, thanks to sustained structural reforms and strengthening consumer demand. However, inflationary pressures are expected to persist in the medium term, especially in Nigeria, Ghana, and Angola, resulting in a cautious approach to monetary policy easing by Central banks.
According to Cordros Securities analysts, the global economy has demonstrated remarkable resilience in 2024, with robust consumer and fiscal spending, coupled with a solid services sector, providing the necessary support for steady growth. However, this growth momentum has been dampened by several factors.
These include the tightening of monetary policy, which has hindered consumer demand and business confidence, geopolitical fragmentation, leading to slow productivity growth, and the property crisis in China, resulting in weaker-than-anticipated demand. Together, these factors have exerted a drag on global economic performance, despite the positive drivers.
According to Cordros Securities, global inflation eased significantly in 2024, trending closer to the targets set by central banks worldwide. This decline in inflation was largely attributable to the easing of supply chain disruptions that had been heightened by the pandemic and the Russia-Ukraine war, as well as tighter monetary conditions that kept wage growth in check.
As inflationary pressures subsided, central banks around the world adopted a more accommodative stance in their monetary policy, signaling a shift in the risks to the global economy. The analysts opine that these risks are now more balanced, with inflationary pressures easing and economic growth remaining resilient.
“As we move into the new year, we anticipate (1) a central bank’s shift towards monetary policy easing, (2) sustained expansionary fiscal measures, and (3) productivity gains from technology innovation will bolster global growth.
“Nonetheless, we highlight the risks to global growth remain prominent. These include (heightened trade protectionism and immigration controls, (2) the lag effect of prolonged monetary policy tightness, (3) increased geopolitical rifts, (4) climate change, and (5) weaker-than-anticipated economic activities in the Chinese economy,” Cordros Securities stated.
The analysts from Cordros Securities predict that global inflation will decelerate in 2025, compared to the previous year. The expected slowdown in inflation is partly attributed to lower energy prices and still-tight monetary policy, which is expected to limit wage growth.
However, despite these downward pressures on inflation, the analysts anticipate that inflation will remain above the targets set by central banks due to ongoing reconfigurations in global supply chains and persistent wage pressures. These factors, they believe, are driven by demographic changes and stricter immigration controls, leading to tight labor market conditions and upward pressure on wages.
The analysts also cited a projection by the International Monetary Fund (IMF), which predicted that global inflation would decelerate to 4.3 percent year-on-year in 2025. This projection, according to Cordros Securities, implies that while central banks are expected to continue easing monetary policy in 2025, interest rates will remain at restrictive levels for a longer period of time to keep inflation in check.
The analysts point out that this stance suggests a low likelihood of a return to zero-interest rate policy in the foreseeable future, as central banks aim to maintain price stability and preserve the hard-won progress made in taming inflation.
GlobalData predicts strengthened 2025 global economy
Adding to the growing consensus among economic analysts, GlobalData, a leading data analytics and consulting firm, reiterates its projection that the global economy is expected to gain strength in 2025.
In the face of potential impediments such as trade tensions, inflationary pressures, and geopolitical uncertainties, GlobalData maintains its cautiously optimistic outlook, anticipating growth in the global economy despite the challenging environment.
“As we step into 2025, the global economy is poised for accelerated growth despite the challenges such as geopolitical tensions and potential shifts in policy that could disrupt growth and deepen regional inequalities,” it stated.
GlobalData dwelled on the potential impact of a new administration in the United States, emphasising that shifts in policy could alter the landscape of international trade, monetary policy, and economic cooperation.
However, it noted that the easing of inflationary pressures and support from central banks around the world offer a positive counterbalance, introducing an element of optimism to the economic forecast.
Taking all these factors into account, GlobalData predicts that the global economy will experience modest but meaningful growth of 2.54 percent in 2025, compared to an expected growth rate of 2.52 percent in 2024.
GlobalData’s report titled “Global Macroeconomic Outlook – Q4 2024 Update,” also expands on its outlook for various regions around the world. The report indicates that Europe is expected to see growth accelerate from 1.40 percent in 2024 to 1.52 percent in 2025, while Asia-Pacific will see an uptick in growth from 3.51 percent to 3.63 percent.
Of particular note, the Middle East & Africa (MEA) region is projected to experience a significant increase in growth, from 2.31 percent in 2024 to 3.74 percent in 2025.
GlobalData’s report also noted the expected economic growth in the Middle East & Africa (MEA) region, driven by a combination of factors. The non-oil sectors are projected to experience expansion, coupled with the anticipated end of oil production cuts in 2025, strengthening economic sentiment. However, geopolitical tensions in the region remain a persistent source of risk.
In the Americas, a slowdown in economic growth is projected from 2.28 percent in 2024 to 1.83 percent in 2025, amid the uncertainties surrounding President-elect Trump’s policies.
Annapurna Pillutla, analyst, economic research team at GlobalData,remarked, “While the global economy is on the road to recovery, its growth depends on effective management of inflation, geopolitical risks, and regional disparities.
“In the Q4 2024 update, GlobalData kept its 2024 global economic growth forecast at 2.52% but slightly lowered the 2025 projection by 0.06 percentage points to 2.54%. This adjustment reflects the impact of rising geopolitical tensions and potential supply disruptions carrying over into the next year.”
Following the trend of economic growth, GlobalData expects a steady decline in the global inflation rate. From a projected 5.80 percent in 2023, the rate is expected to decline to 4.28 percent in 2024 and further to 3.45 percent in 2025, as various economic factors exert a downward pressure on price levels.
Pillutla asserted, “Broader geopolitical realignments, including US-China tensions, regional challenges in the MEA, and the potential resolution of the Ukraine conflict, are expected to reshape the global economic landscape in 2025.
“The outlook is cautiously optimistic, with growth hinging on central bank policies and geopolitical developments. The global economy remains fragile, with potential for either acceleration or slowdown in growth.”
Morgan Stanley projects 3.0% growth rate for 2025
Meanwhile, multinational investment bank and financial services firm, Morgan Stanley & Co., maintains cautious stance in its 2025 global growth outlook.
Morgan Stanley predicts a global growth rate of 3.0 percent for 2025, down from the previously projected 3.1 percent, with a further decrease to 2.9 percent in 2026.
The firm attributes this slowdown to the likely implementation of immigration and tariff changes in the US, which could dampen consumer and business confidence, hinder trade flows, and disrupt global supply chains.
Seth Carpenter, Morgan Stanley’s chief global economist, remarked, “The outcome of the US election is going to usher in policy changes with implications that will reverberate through the global economy.”
Morgan Stanley predicts that the extension of the 2017 Tax Cuts and Jobs Act will likely preserve the current fiscal environment without spurring additional economic growth. With the Republican administration expected to renew the provisions set to expire in 2026, the fiscal stance will remain relatively stable, without providing a significant stimulus to growth.
However, the firm anticipates that the introduction of new tariffs will begin with Chinese imports before extending to other countries, leading to an increase in consumer prices by the second half of 2025.
According to Morgan Stanley’s latest assessment, the global trend toward normalised inflation persists, though the pace of progress differs across regions.
In the U.S, inflation is projected to rebound by the end of 2025, driven by higher prices and labor costs stemming from the anticipated new tariff and immigration policies. However, the firm believes that inflation will resume its downward trajectory in 2026 as growth slows to 1.6 percent, falling below the economy’s potential.
Morgan Stanley anticipates that, as inflation in Europe recedes at a steady pace, the European Central Bank (ECB) and the Bank of England (BOE) may continue to reduce interest rates throughout the year to support economic growth.
However, the firm projects that the growth rate of the European economy may have reached a sustainable pace of around one percent, which could be hindered by global trade disruptions and other challenges to economic stability. This potential “drag” on the region’s growth could necessitate further action from the ECB and the BOE to shore up confidence and support economic expansion.
Morgan Stanley expects deflationary pressures to persist in Japan, with inflation rates predicted to fall slightly below the Bank of Japan’s (BOJ) 2% target by 2026. This ongoing struggle against deflation has been a key economic policy challenge for the country for many years.
Nevertheless, the firm forecasts that the BOJ may raise interest rates twice in 2025, reflecting a growing belief that the Japanese economy is finally breaking free from its decades-long bout with deflation. Crucial to this development is the emerging trend of wage inflation in Japan, which is expected to remain steady at approximately two percent.
Morgan Stanley’s outlook for China suggests that deflationary pressures are likely to persist in the economy, with the GDP deflator predicted to hover near zero in the face of global trade disruptions and overcapacity in the industrial sector.
Despite potential stimulus measures and efforts to boost consumer spending, the firm believes that these measures may not be sufficient to offset the deflationary effects of these macroeconomic challenges.
Investment Opportunities and Market Outlook
Morgan Stanley’s outlook for fixed-income markets predicts that central banks’ ongoing monetary easing policies in early 2025 could provide a boost to bond markets. The firm expects that US Treasury yields will drop as additional rate cuts are implemented.
Within the corporate credit market, Morgan Stanley projects strong performance in the first half of the year, with investment grade and high yield spreads reaching their tightest levels in 25 years. This improved sentiment may result in leveraged loans offering particularly attractive risk-adjusted returns relative to investment grade and high-yield bonds, providing investors with compelling opportunities to capitalize on the favorable market conditions.
“The sequence of policy implementation will prove crucial for markets. If potential tax cuts come first, equities could move higher, while prioritising tariffs could bring inflation and corporate margin concerns to the fore.
The timing of announcements versus implementation may provide a period of benign macroeconomic conditions well into 2025,” the firm stated.
Morgan Stanley highlights its regional preferences, placing the US market at the forefront of its investment strategy. The firm’s analysis points to Japanese equities as another attractive option, as the country’s central bank policy have successfully guided the economy through a soft landing.
In contrast, European equities receive a neutral recommendation, due to the region’s exposure to China’s economic conditions, slower growth compared to the US, and the possibility of trade restrictions.
Emerging market equities continue to languish in the firm’s analysis, with potential trade tensions posing additional obstacles to their appeal.
