What is the 2025 outlook for the global economy? Via Investing.com

As 2025 approaches, Capital Economics analysts said in a note this week that they expect a modest recovery for most major global economies after a challenging second half of 2024.

According to the firm’s analysis, two key themes will shape advanced economies: normalizing inflation and easing monetary policy, “both of which should provide some support to GDP growth,” the firm said.

In addition, China’s recovery is expected to accelerate as fiscal stimulus takes effect, although ongoing trade tensions with the US and its allies may limit its growth potential.

However, more risks remain on the horizon, according to Capital Economics. The firm points to “inflation containment, particularly in Europe,” which could hold back real income growth and reduce the scope for policy easing.

In addition, political transitions in various countries are said to create uncertainties, with potential risks related to debt-financed stimulus and financial market reactions.

The firm believes that increasing isolationist trade policies and a stronger pushback against immigration are also flagged as concerns, potentially leading to stagflationary effects in advanced markets.

While some fear recession is on the horizon for 2025, Capital Economics remains cautiously optimistic.

They note warning signs such as a decline in manufacturing surveys, rising unemployment and rising 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 “a soft landing is the most likely outcome” for 2025, although they are closely monitoring risk developments.