Inversis Anticipates Economic Resilience in 2025 Despite Trump's Tariff Threats

• The global growth forecast for this year stands at 3.3%, similar to that of 2024, driven by consumer spending and a strong labour market. The U.S. will lead growth (1.9%-2.7%), while Europe lags behind (1.1%) and China remains cautious amid the prospect of a potential trade war.
• Donald Trump returns to the U.S. presidency in a vastly different economic landscape from 2016, marked by higher deficits and debt levels, casting doubt on his actual ability to implement his fiscal and trade policies—policies from which the country itself would not be immune.
• Given the uncertainty surrounding Trump’s policies and the persistent inflationary pressures, the Federal Reserve has opted for a cautious approach, with no more than two rate cuts expected in 2025. The European Central Bank, on the other hand, with greater room for manoeuvre, could lower rates by up to 100 basis points this year.
• 2025 is shaping up to be a favourable year for all asset classes. In fixed income, the yield curve is normalizing, and 10-year bond returns are making a comeback, with a preference for high-quality European credit. In equities, the focus remains on U.S. stock markets and key sectors such as technology, healthcare, and defense.

Madrid, 3 February 2025 – Inversis has presented its global and regional perspective on the current macroeconomic landscape, which serves as the foundation for its investment strategy for the first quarter of 2025. Led by its Chief Macroeconomic Strategist, Ignacio Muñoz-Alonso, the firm anticipates that 2025 will be a year of economic resilience, despite the threats of trade wars triggered by Donald Trump’s return to the White House.

Nevertheless, unexpected developments cannot be ruled out, particularly given the U.S. president’s economic agenda. These may include the impact of potential trade tensions on growth and, consequently, on central banks' future policy decisions, uncertainties regarding fiscal policy in an environment of interest rate cuts and tariff hikes, and the deregulatory push in sectors such as energy and technology.

In short, 2025 will be defined by potential trade wars, persistent inflation that has yet to reach the 2% target, and the uncertainty of whether Europe will finally achieve economic momentum. In financial markets, the year is expected to be shaped by volatility in yield curves, equity valuation multiples, and the future of the technology sector following the recent emergence of Chinese AI.

Trump and His Actual Room for Policy Implementation

Donald Trump’s return to the U.S. presidency begins once again with a wave of executive orders, announcements of protectionist economic measures, and threats of tariff increases. The key question, however, is whether the new occupant of the White House will have real room for manoeuvre in an economic landscape vastly different from 2016, now characterised by higher deficits and debt levels.

The first major uncertainty stems from Trump’s tariff hike threats. Trade wars could lead to a decline of more than 1.3% in U.S. GDP and a 0.3% rise in inflation—translating into an estimated annual loss of around €2,600 per average American citizen, with significant political costs.

His proposed fiscal policies, reminiscent of those introduced in 2017 to lower the average corporate tax rate to 15%, would further increase the public deficit beyond its current projected trajectory. Meanwhile, his stance on immigration, including mass deportation plans, could push inflation up by 0.5 percentage points and reduce GDP by 0.4% due to its impact on the country’s labour force. Similar inflationary pressures could arise from deregulation in key sectors such as energy and technology, particularly in the cryptocurrency market.

All these factors raise doubts about whether Trump will be able to implement his proposed measures, given their potential negative economic effects and the social and political costs they entail in terms of public approval.

Regional Outlook

With this backdrop and the prospect of rising inflation, the global growth forecast for 2025 is expected to be around 3.3%, similar to 2024.

By region, in the U.S., we expect growth in a range between 1.9% and 2.7%, in line with the Fed's forecast (2.1%), prices at 2.5%, a contained unemployment rate, and federal funds rates between 3-4%. We expect a rebound in yields in the U.S., driven by consumption and a robust labour market. Fiscal deficit on the rise, with a debt-to-GDP ratio far from adapting.

Regarding inflation, after growing in December for the third consecutive month, it remains resistant to falling despite core inflation showing some relief and beginning to correct, albeit very slowly.

With this scenario, the Federal Reserve has decided to hit the brakes and, following last week’s suspension, we lean towards only two rate cuts in 2025, leaving federal funds at 3.9%.

Europe is the counterpoint to what is happening in the U.S. (which is growing above expectations with price and wage tensions emerging). In the eurozone, we may have reached the bottom in terms of low growth figures. Consensus points to 1%-1.1% in 2025, also in line with the ECB.

Regarding inflation, we will see figures close to the 2% target, unemployment contained, and a fiscal deficit that should begin to be contained. All components of inflation will behave well, except for the services sector, which remains stubborn and drags down core inflation in the general index.

European growth will be driven by private consumption, thanks to the labour market and wages, as well as by public consumption, both of which justify 2/3 of European growth.

With this environment, the ECB’s scenarios involve deposit rates between 1.2% and 2%, with up to 4 cuts in 2025. With the worst of the crisis behind, the eurozone’s challenges are focused on fiscal consolidation and trade tensions with the U.S., with greater impact in Germany.

Finally, China maintains the structural problems seen after the reopening post-pandemic, particularly in consumption. In recent months, there seems to have been some increase in activity, which could anticipate some recovery, but retail sales are still low and doubts persist in the real estate sector. There are factors suggesting that consumption will remain constrained for several months. China’s levers to move forward will be, on the one hand, fiscal stimulus and, on the other, foreign trade, with more aggressive trade policies.

Asset Allocation

After a 2024 where recession did not materialize, a recovery begins with a rise in yields associated with Trump’s victory, but also with the consequences of his deregulation and fiscal measures.

This context makes us very positive on all segments of fixed income. In sovereigns, we see the curves starting to recover their positive slope, with short-term premiums moving below 10-year yields. We are positive about maintaining a similar position, underweighting more volatile sectors. In the Eurozone, we also see the normalisation of the yield curve, and we do not expect disruptive decisions from the ECB in a scenario of normalised growth. We lean towards high-quality European credit.

Regarding equities, while being aware of the exhaustion after two very strong years for stock markets, we believe that at least in the U.S., there is still potential for positive returns following the measures promised by the winner, especially regarding corporate taxation, as we saw during his previous mandate. In summary, our focus is on U.S. equities and the following sectors: technology, downplaying the impact of Chinese AI breakthroughs, discretionary consumption, energy, healthcare, and defence, following the increase in military investment with Trump’s return.

About Inversis

Inversis, a 100% subsidiary of Banca March, is the leading company in Spain offering global investment technology solutions and the outsourcing of financial services to financial institutions, insurers, and new entrants in the investment product distribution sector.

Since its inception, Inversis has consistently invested in technology and innovation to adapt swiftly to the needs of institutional business. Thanks to Inversis' technology, its institutional clients can outsource activities and processes that are not part of their core business, thus increasing their efficiency.

Inversis, in addition to being an investment product platform, provides services in brokerage, settlement, and custody, as well as cutting-edge technological outsourcing solutions; treasury and capital markets services; depositary services; brokerage and online services; and analysis services. www.inversis.es