{"id":21898,"date":"2025-03-03T14:44:09","date_gmt":"2025-03-03T13:44:09","guid":{"rendered":"https:\/\/latribune.lazardfreresgestion.fr\/?p=21898"},"modified":"2025-03-03T14:44:09","modified_gmt":"2025-03-03T13:44:09","slug":"economic-market-outlook-january-2025","status":"publish","type":"post","link":"https:\/\/latribune.lazardfreresgestion.fr\/en\/economic-market-outlook-january-2025\/","title":{"rendered":"Economic & market outlook – January 2025"},"content":{"rendered":"

While some aspects of the new US administration’s program could boost investor optimism, others are likely to have a negative impact on the US economy and the rest of the world. The resulting volatility could create investment opportunities to be seized.<\/i><\/p>\n

Economic outlook<\/b><\/h2>\n

United States: greater political uncertainty<\/b><\/span><\/h3>\n

The outcome of the U.S. elections has given the Republicans significant leverage to implement the new president’s agenda.<\/p>\n

It is based on four main policies:\u00a0 higher tariffs, lower immigration, tax cuts and deregulation.<\/p>\n

The new administration’s tariffs and immigration policies are likely to have very negative effects on the economy and inflation (figures 1 and 2).<\/p>\n

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Meanwhile, business-friendly tax cuts and deregulation have already prompted a trump bump in small business optimism (figure\u00a03).<\/p>\n

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On the fiscal front, the new government plans to make most of the temporary provisions of its 2017 tax law permanent and cut taxes on companies producing in the US.<\/p>\n

The narrow Republican majority in Congress could make negotiations long and difficult.<\/p>\n

However, the President has considerable discretionary authority to act on trade and immigration.<\/p>\n

While it is unclear whether the President will follow through with all his pledges to increase tariffs, an immigration crackdown is highly likely.<\/p>\n

In terms of deregulation, the new administration intends to unleash oil drilling in a bid to increase production. Yet the reality is that prices would have to approach USD\u00a090 per barrel to prompt a sharp acceleration in production, and OPEC\u2019s high spare capacity is likely to anchor them to the current level of USD\u00a075\u00a0per barrel.<\/p>\n

If the new government enacts his immigration and trade policies, the inflationary effect could force the Fed to interrupt its rate-cutting cycle.<\/p>\n

A still-robust economy<\/b><\/span><\/h3>\n

The latest economic indicators reveal that the probability of a hard economic landing in the US has declined in recent months.<\/p>\n

Robust growth, driven by consumers and the State, has partially offset sluggish investment (figure\u00a04).<\/p>\n

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Noteworthy is that consumer spending is mainly driven by the most affluent households, underpinned by a very positive wealth effect.<\/p>\n

Employment data have improved: December\u2019s employment report revealed a healthy labour market and weekly jobless claims remain at reasonable levels (figure\u00a05).<\/p>\n

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Robust growth and healthy employment raise the question of whether labour markets will tighten and wages will rise, heralding more inflation. While shelter inflation is easing, other services prices are only declining very slowly (figure\u00a06).<\/p>\n

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Given this backdrop, the Fed sees no urgent need to ease monetary policy and has adopted a cautious approach to further rate cuts.<\/p>\n

Productivity gains are the key to strong growth without inflation and although progress has been made, growth falls short of the productivity booms observed the 1960s and early 2000s.<\/p>\n

It is still too early to estimate the global impact of artificial intelligence (AI). Recent productivity gains stem mainly from the effects of digital transformation in retail, while the sectors most exposed to AI are not yet visibly accelerating.<\/p>\n

What about the rest of the world? <\/b><\/span><\/h3>\n

Economic indicators in the eurozone are consistent with moderate growth hampered by industrial challenges and the German economy.<\/p>\n

While these difficulties could persist, consumer spending harbours significant potential for growth as household spending has not risen in line with household income (figure\u00a07).<\/p>\n

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The savings rate has risen sharply such that even stabilisation would be enough to boost consumer spending and support broader growth.<\/p>\n

For this to happen, household confidence, which is currently low due to political upheaval in Germany and France, needs to improve. The German elections at the end of February and ongoing French budget negotiations will require close monitoring.<\/p>\n

Meanwhile, the economy should benefit from the ECB rate cuts, with falling inflation opening the door to more reductions.<\/p>\n

While most models indicate that US tariff increases should have a limited impact on the eurozone (figure\u00a08), China\u2019s economy could suffer significantly.<\/p>\n

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Chinese exports to the US account for just 2% of China\u2019s GDP, but a sharp rise in tariffs could prompt them to fall dramatically.<\/p>\n

This would deprive the Chinese economy of an essential growth driver: with domestic demand dragged down by the property sector (figure\u00a09), much of China\u2019s growth relies on foreign trade.<\/p>\n

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Against this backdrop, more monetary easing can be expected, although the scale of the support remains an unknown.<\/p>\n

Macroeconomic overview<\/b><\/span><\/h3>\n

The economic picture is mixed and growth is expected to remain at similar levels to 2024.<\/p>\n