Markets have cheered any good news emerging in 2024 from the economy, corporate earnings and the political environment, although occasionally they were caught by surprise. Looking ahead, they will be driven by earnings momentum, a scenario of slowing US growth, and rebalancing labour markets but not drastically weakening.
On the other hand, the Fed getting a bit more hawkish and Trump’s approach to trade along with the international response could create volatility. Outside the US, European growth and policy-making and China’s response to its domestic problems will drive the markets.
In particular, we see the following factors as key drivers of the global economy:
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US growth resilient but still on a declining path and subject to uncertainty on Trump policies. Recent data are pointing towards better fundamentals in the economy, but the overall growth trajectory doesn’t change.
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European growth struggling to stay on course. Governments’ attempts to impose fiscal consolidation (France, Germany) are clouding the growth outlook. In Germany, we could see a loosening of the debt brake, but it would only be gradual and the economic impact would be seen from 2026.
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Uncertainty around the Fed, while the ECB is expected to be more dovish due to inflation falling faster. We have decreased ECB’s terminal rate expectations by 50bps to 1.75%, to be reached by July 2025. The Fed delivered a hawkish cut, meaning it has very close eyes on inflation.
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Chinese announcements are big on intent. While the main points revolve around expanding the fiscal deficit and boosting domestic demand, we would like to see details about how the government intends to do it.
You can now read the full whitepaper at the link below
