Monthly house view | Outlook 2025

Heading into a new era in 2025, the US economy is in a healthy position, supported by cyclical and structural tailwinds and a Federal Reserve in policy easing mode. Although we expect a slowdown in the US, our base case is for growth to remain solid. A recession appears unlikely. Europe and China, by contrast, face headwinds as they grind through their respective manufacturing and domestic economic woes, compounded in Europe’s case by political uncertainty in its core. An America First policy in the US could exacerbate the divergence, giving a boost – at least in the short term – to US growth, while trade tariffs hit Europe and China. At the same time, the Republicans’ slim majority in the House of Representatives could result in a more conservative fiscal stance, as lawmakers rein in more radical tax proposals.

An unexpected outcome?

Unexpected outcomes could nonetheless arise. Positive surprises are entirely possible, for example if peace were to materialise in Ukraine and the euro area prove more politically stable, with German elections in February one potential catalyst for a reset. At the same time, a negative and radical outcome could unfold in the case of, for example, a trade war, with a consequential hit to global growth.

Investment implications 

Our core positioning is crucial for portfolio resilience and is set to seize on the opportunities we expect our base case scenario will present.

Our strong convictions around specific markets and segments should enable investors to generate additional value. In this context, we expect the prospect of corporate tax cuts and deregulation to support US equities, but we firmly believe in remaining selective. Our preference is for cash-rich companies. We believe deregulation and higher public markets valuations will make exit strategies easier, benefitting a Private Equity revival. Deregulation should also support mergers and acquisitions.

In addition, retaining some optionality would allow scope to react to surprises. On the positive side, Europe’s prospects could improve should France and Germany find political stability and peace materialize in Ukraine. This makes it worthwhile keeping one’s options open on European equities to benefit from future growth surprises and exploit favourable entry points. Should US measures turn out to be less hawkish than expected, then US sovereign bonds could benefit. Alternatively, a negative surprise could yet materialise, with fiscal discipline slipping in the US and an all-out trade war breaking out. In such a scenario, both gold and the Swiss franc would emerge as safe haven options.