Economic outlook for 2025 strong, but problems could arise in many places | Wilnesh News
As 2025 begins, the U.S. economy will face a number of familiar obstacles and challenges. Rising interest rates, potential weakness in the labor market and a potentially unstable political climate on Capitol Hill are just some of the obstacles the nearly $30 trillion economy will face. But sentiment on Wall Street is largely upbeat heading into the new year, with consumers remaining strong in the face of persistent inflation, corporate profits expected to surge again and the prospect of a friendlier business environment in Washington. “There’s a good chance the economy will accelerate in 2025 and continue to outperform,” said Joseph Brusuelas, chief economist at RSM. “This is the economy we want. This is the economy we need. .” In Brussulas’s most likely scenario, real gross domestic product would accelerate at a rate of 2.5% over the next year, just a bit slower than the roughly 2.7% growth likely in 2024. , he assigned about 50% probability. In fact, he thinks the second most likely scenario is growth of more than 3%. He estimated that the probability of a recession was only about 15%. Those figures were ahead of the Fed’s 2.1% growth forecast and the 2.2% forecast in a survey of professional forecasters. Still, it’s consistent with a generally optimistic outlook for the economy and stock markets. Strength from familiar places Brusoulas said the main drivers will be “robust household consumption, absolutely rock solid and fixed business investment”. “Furthermore, I’m very optimistic about productivity-enhancing investments in equipment, software and intellectual property as businesses prepare for the (artificial intelligence) revolution.” He added: “There is a real investment-driven story in the economy, investment Portfolio managers really need to pay close attention. “Most of the recent economic stories have to do with President-elect Donald Trump’s agenda of cutting taxes, reducing regulations and cutting taxes, and what is expected to be a strong round in areas like energy exploration and artificial intelligence. Government spending. However, these initiatives are more likely to be the story of 2026, and Trump is increasingly likely to face strong spending resistance in Congress, especially as he tries to push his own plans. Instead, a continued push for technological innovation and business investment, as well as resilient consumers, are likely to further boost the near-term outlook. Equipment spending has been surging in 2024, rising 9.8% and 10.8% in the second and third quarters, respectively, as part of a roughly 4% surge in nonresidential investment, according to the Commerce Department’s Bureau of Economic Analysis. Despite rising prices, consumer spending remained strong, with retail sales rising 3.8% for the year through November, according to the Census Bureau. Corporate profits are also expected to have another good year. S&P 500 companies are expected to grow 14.8%, nearly double the average of the previous 10 years, according to FactSet. “In our base case, we expect continued growth in the U.S. economy, supported by healthy consumption, loose fiscal policy and lower interest rates,” UBS said as it looked ahead to the year ahead. “We believe that the U.S. economy has sustained growth in recent years. Many of the key factors for growth are likely to persist. “Stock market analysts expect strong returns in 2025, with the S&P 500 consensus average of around 6,678, implying an upside of approximately 12% from current levels. .SPX YTD Line 2024 S&P 500 Headwinds To be sure, some of the key tenets of growth are at least somewhat shaky. Concerns about labor market conditions linger. While recruiting has remained largely stable, it has cooled significantly. Layoffs have also been low, but the long-term unemployment rate has been steadily rising, with the number of people unemployed for 27 weeks or more reaching the highest level since January 2022 in November. Si said. “We’ve seen this interesting intersection of technology disruption that may be spreading across the workforce, and we’re going to want to slowly and methodically try to really understand this as close to real time as possible.” Other biggest threats include interest rates, inflation and interrelated factors in Fed policy. Fed officials recently raised their inflation forecast to 2.5% in 2025, and now expect it will take until 2027 to reach the 2% target. Its key overnight borrowing rate was cut by half a percentage point. Although the central bank subsequently cut interest rates by a further 25 basis points in November and December, the path forward appears less clear. In fact, futures traders expect only one or two more rate cuts in 2025, which could keep borrowing costs rising and put pressure on trillions in U.S. corporate, personal and government debt. Feel worried. However, S&P Global called the problem “manageable” in a recent report as companies took advantage of favorable conditions this year to refinance, reducing their load by 11%, about 41% of which was speculative grade. According to data from the Securities Industry and Financial Markets Association, corporate bond issuance will surge in 2024. As of November, corporate bond issuance totaled US$1.9 trillion, a 29% increase from the same period last year. The current total outstanding debt is US$11.2 trillion, with an annual growth rate of 6.1%, and Goldman Sachs expects to issue US$1.5 trillion in 2025. growing up. “You’re going to see the economy grow. You’re going to see corporate America grow. You’re going to see balance sheets grow. As companies grow, they issue debt to fund that growth.” Even though people expected Trump’s platform could become a key growth driver, and there are concerns about his agenda. One of the biggest concerns is tariffs, which there are fears could reignite inflation even though it remained low during Trump’s first term in office from 2017 to 2021. Slightly lower in 2021. RSM economist Brusoulas echoed the sentiments of many of his colleagues, saying tariffs did not appear to pose an immediate threat, although they may in the longer term. “Are we talking about a trade conflict or a trade war? If we’re talking about a trade conflict like in 2018, 2020, I’m not worried about a spike in inflation. Those goods that are subject to tariffs are going to be more expensive,” he said. “If we had a real trade war, real tit-for-tat retaliation, then I would be concerned.” Correction: Long-term unemployment levels have been steadily moving higher. An earlier version incorrectly stated this metric.
