Looking ahead to a shifting economic and political landscape, our experts provide their latest insights into:

United States 

US Republicans now control the White House and Congress, enabling significant policy changes. Early 2025 will see continued solid growth, and as Donald Trump’s policies take effect, expect a modest acceleration in US activity. 

Fiscal changes, including extending tax cuts and new business tax giveaways, will boost economic growth. However, disruptive trade policies and restrictive immigration will combine to slow it slightly. Overall, we’re raising our US growth expectations in the near-term.

We expect inflation to get stuck around 2.5% due to fiscal loosening and tariff increases. This means the Federal Reserve (Fed) may pause interest-rate cuts when they fall to 3.5%-3.75%. 

A high degree of uncertainty remains, with aggressive trade or fiscal moves potentially affecting growth and inflation – limiting the Fed's ability to ease monetary policy further. (James McCann)

Regional conflict 

The incoming Trump administration’s impact on the war in Ukraine and Middle East stability is unclear. 

Trump has said he will secure a ceasefire in Ukraine within 24 hours of his inauguration, but complexities suggest quick agreements are unlikely. The main questions are whether Russia and Ukraine will compromise for peace and if any agreement will last. We are expecting an unstable ceasefire.

In the Middle East, there will be a renewed focus on Iran, with potential sanctions and military action. While domestic pressure might push Iran towards a deal, there are doubts about its viability. The durability of any ceasefire agreements between Israel, Lebanon and Hamas is also a concern. (Lizzy Galbraith)

International trade 

Trump has threatened 60% tariffs on Chinese imports, but it's more likely the average bilateral tariff rate will rise from 16% to around 35%-40%, using existing ‘Section 301’ legislation designed to counter ‘unfair trade practices.’ 

China’s yuan has already weakened by more than 2% since November’s US election. A further decline of 10%-15% is possible in a bid to make Chinese exports cheaper. 

That said, ‘non-tariff’ action by the US, such as focusing on ‘rules of origin’, could have a more damaging effect on China's economy and spill over into APAC's supply chains. This could lead to further Chinese retaliation – recent measures have included export restrictions on critical minerals. China might also target US businesses. 

While we are expecting increased policy stimulus from China, it may not fully offset the economic shock of tariffs or provide much growth impetus to the global economy. (Bob Gilhooly)

Emerging markets, ex-China 

New US policies will lead to market volatility in the short term, affecting emerging market (EM) central banks and possibly stalling interest-rate easing cycles – in Indonesia, for example. 

The impact of tariffs, US curbs on immigration, sanctions and military ties will become clearer, revealing EM winners and losers. 

Trade will be a key focus, with some EMs, like Vietnam and Malaysia, potentially struggling because of their close integration into China's supply chain. Others, like India, could benefit. 

We are expecting an EM monetary easing cycle, but divergences will occur. Countries with inflation challenges, like Brazil, will find it harder to cut. 

Ultimately, as the US reduces its reliance on China, other EMs might benefit over time, with some winners from Trump's previous term continuing to succeed. (Michael Langham)

Mexico 

Mexico is exposed to shifts in US trade and immigration policies, especially with new leaders on both sides of the border. 

It benefited from Trump's decoupling strategy from China to become the US's biggest source of imports. However, this also means Mexico stands to lose heavily if the US imposes stricter trade restrictions. 

Trump's tough talk on tariffs and deportations will create waves in financial markets, impacting investment. Despite this uncertainty, we think Mexico will avoid major trade curbs as Trump will likely focus on China. 

Mexico’s integration into US value chains offers potential gains from nearshoring efforts. That said, its new president, Claudia Sheinbaum, may not achieve the rapport Trump had with her predecessor. Her reform agenda has also worried foreign investors. (Tettey Addy)

Eurozone 

The Eurozone faces significant political risks next year – primarily in Germany and France. 

In Germany, early elections due to the breakup of the governing coalition raise uncertainties about the future of the ‘debt brake’ – a fiscal rule limiting deficit spending. Although reforms are expected, details are unclear, and they will likely result in only modest fiscal expansion – due to domestic and European Union (EU) constraints. 

France's fiscal issues are more severe, with the collapse of Prime Minister Michel Barnier's government complicating efforts to consolidate the country’s fiscal position. Additionally, there are risks to EU-US trade. Trump’s threats of tariffs may just be a bargaining tool, but a serious risk of recession looms if negotiations falter. 

So, we are expecting the European Central Bank to swiftly normalise monetary policy in response to these challenges. (Felix Feather)

Japan 

Growth in Japan has been resilient, driven by strengthening consumer spending and rising real incomes, supported by fiscal measures. 

However, external demand may face challenges next year due to trade tensions, although Japan has previously negotiated tariff exemptions. Political stability will also be crucial, with an upcoming upper house election to watch. 

Headline inflation is declining, but core services inflation shows stability, and the wage growth outlook is promising with trade unions anticipating a 5% increase. 

Yen weakness is pushing up goods prices, giving the Bank of Japan room for manoeuvre on interest rates. We are forecasting a 25-basis points hike to 50bp in January, with limited market movements anticipated in response. 

Meanwhile, Japanese equities are supported by a strong structural outlook – benefiting from the country’s role in the global value chain, particularly in robotics and semiconductors. (Sree Kochugovindan)

United Kingdom 

Chancellor Rachel Reeves's October budget significantly increased taxation and borrowing to fund spending and investment, which led to rising bond yields and political fallout. Despite committing to avoid further tax increases or borrowing, the credibility of this commitment is in question. 

Her new fiscal rules leave little room for error, as higher borrowing costs or weaker economic growth could render current fiscal plans incompatible with these rules. By the next budget in late 2025, additional measures may be necessary to maintain fiscal stability. 

Furthermore, current spending plans may prove unsustainable, leading to potential tax increases. Although fiscal rules might be rewritten, doing so could test the confidence of financial markets. (Luke Bartholomew)