Outlook 2025 – Update Q3
by
Felix Ronner
Structural Environment
- High indebtedness + adverse demographic developments + low productivity growth = low global trend growth. Among other things, the high level of indebtedness leads to a more unequal distribution (Gini index). This is one of the reasons for shifts in political constellations (polarization).
- Re-nationalisation of economic and social policies. Stronger focus on distributional effects within countries.
- Supply shortages in labour markets are easing only gradually.
- A de-dollarisation and possible decoupling from the West of an enlarged BRICs group seems possible, but this would result in two newly competing currency systems.
- Geopolitical tensions – especially the conflicts in the Ukraine and in the Middle East – remain heightened.
- The polarisation between the “West” and the “Global South” can make it more difficult to finance Western debt in the long term – also due to the confiscation of state assets.
Economy
- Compared to the last decade, macro-economic volatility and nominal growth will remain elevated for longer.
- Downside risks to growth are pronounced. There is a great deal of uncertainty about the development of the global economy, particularly the US economy, due to its tariff policy.
- The long-term outlook for the US economy remains favourable given its high trend growth, but there are signs of a temporary period of weakness due to President Trump’s economic policies. We see a subdued growth environment across Europe. China’s weak domestic demand but growing production capacities threaten the industrial sectors in the advanced economies.
- Inflation and interest rate cycles have been synchronized globally since the pandemic but will diverge more strongly again in the future.
- Both the Fed and the ECB will likely cut rates by less than is generally expected.
- In the longer term, (government-led) investment should increase and support growth.
Influencing factors
- Geopolitical risks (i.e. Ukraine, Israel, Iran, Turkey, Syria and Taiwan) have increased and will remain elevated for a prolonged period. This reinforces the de-globalization trend.
- Fiscal policy will remain expansionary, and no austerity policy is likely to be pursued.
- Political risks, with the potential for long-term very adverse outcomes, remain substantial, especially amid the ascent of EU/Euro critical parties in Europe and protectionist measures by the US government. Global risks, and thus the potential for markedly negative long-term scenarios, remain pronounced. The risk of a technological decoupling between the US and China and an economic bloc building has increased.
- An escalation of the global trade war – especially between the US and China – will have lasting consequences and will ultimately be a burden for global growth and financial markets.
- Birth rates have fallen sharply recently. This can lead to social tensions and put additional pressure on trend growth in the longer term.
Market environment
- Risk assets are attractive in the long term. However, due to diverging economic cycles, a selective allocation is advisable.
- The outlook for equities is volatile and accompanied by pronounced setbacks but remains fundamentally positive in the long term. Corporate profits can increase and will be the main contributor to a positive performance.
- The trend towards sustainable investments and “green finance” will intensify across all asset classes in the coming years.
- Yields of “safe” bonds such as German Bunds and US Treasuries will trade sideways on a multi-year horizon.
- With rate cuts, spread products become more attractive. Carry and roll-down remain important for fixed income investors.
- Cautious view for EM currencies. Positive for the Swiss Franc and for the Japanese Yen.
- Longer term friendly environment for precious metals.
You can download the detailed market outlook with an update for Q3 2025 here.