Goldman Sachs Expects “Solid” GDP Growth in 2025

“The global economy is forecast to grow solidly in 2025 despite trade uncertainty,” says the November 2024 Briefings report by Goldman Sachs. Analysts at the multinational financial services firm estimated that the average global GDP will expand by 2.7% year-on-year in 2025. The IMF expects global economic growth at 3.2% while calling it stable yet “underwhelming.” Global macroeconomics deeply impacts the forex, commodity and equity markets worldwide. Keeping the headwinds and tailwinds under consideration is paramount while making trading decisions. Dive into what to expect from the financial markets in 2025.

The US: Resilience

The US economy is expected to grow by 2.5% in 2025. This is much higher than the analyst consensus of 1.9%. Goldman Sachs expects US indices to register a third consecutive year of gains. The S&P 500, the benchmark index of the world’s largest economy, is forecasted to witness a price gain of 9%. The index is forecasted to generate total returns of 10%. Sales growth of 5% may support the corporate revenue uptick.

Trump’s Pro-Business Policies

The Republican party’s clean sweep at the presidential election drives the positive sentiment for the US GDP. The new US president vowed to cut taxes and expedite investment approvals to support business growth. Donald Trump is also inclined to roll back environmental restrictions and lower drilling costs, supporting the country’s oil and gas industry. He also emphasised encouraging AI progress, which may help improve returns in the tech sector. Higher defence investments may also remain a key theme under President Trump.

However, Trump’s import tariffs may fuel inflation as cost-cutting becomes a business priority. This may weigh on the labour market, curtail consumption, and negatively impact GDP growth.

A Strong USD

Goldman Sachs changed its forecast for PCE inflation to 2.4%, higher than the previous forecast of 2%. Trump’s potential import tariffs may keep inflation elevated. These factors may prevent the Fed from lowering interest rates. As per its December report, the Fed expects only two rate cuts in 2025. The DXY, the US dollar index, which tracks the strength of the greenback against a basket of major currencies, gained nearly 1% the day after Fed chair Powell’s statement and traded around 108 in the first week of January 2025. Speculations of higher interest rates for longer bolstered bullish sentiment toward the greenback.

The BRICS membership expanded to nearly twice the number in 2024 and launched BRICS Pay, an alternative to the SWIFT payment system, to reduce the dominance of the US dollar in global trade. If the BRICS nations’ de-dollarisation efforts bear fruit, the USD might be in for a tough year ahead.

Eurozone: Turbulent Times

Goldman Sachs has lowered the EU’s GDP growth forecast to 0.8% from the earlier 1.1%, while Charles Schwab expects it to “drag” at 0.5%. One of the primary reasons is that the EU set foot in 2025 with two of its largest economies, Germany and France, undergoing a political crisis. Fiscal spending decisions by the governments in these nations will significantly impact economic growth in the bloc. The fiscal situation in the UK and Italy also adds to the risks to the EU economy.

Tariff Trouble

US-imposed tariffs are a key headwind to the export-dependent EU’s growth. The European Commission may retaliate with equal tariffs. However, according to Nomura, 10% retaliatory tariffs can lower GDP growth by 0.1 pp. This is because the pricing power of EU manufacturers is already diminished. They may have to absorb import costs, resulting in lower profits. As of November 2024, Goldman Sachs expected the STOXX 600, the index made of UK and EU stocks, to generate a total return of 9% in 2025.

Growth Outlook

Core inflation in the Euro Area is expected to slow to 2%, the target level. Therefore, the European Central Bank (ECB) may maintain its pace of monetary easing to reach a terminal rate of 1.75%. Lower interest rates drive investors away from a currency. Therefore, poor demand may weigh on the EUR.

The real wage growth in the EU slowed sharply in November and December 2024. Subdued consumption may hurt the economic growth of the region.

APAC: Mixed Bag

India is expected to remain the fastest-growing major economy in 2025 with an expected GDP growth of 6.7%, which will significantly impact global economic growth. Australia and Singapore are also expected to outperform others in the APAC region. The Japanese economy may recover from the expected 0.2% contraction in 2024 to an expansion of 1.2% in 2025, while China’s GDP is expected to grow 4.9%. 

China

China may have to bear an up to 60% increase in trade tariffs by the US, which could lower GDP growth by 0.7 percentage points. However, the Chinese government’s fiscal stimulus package to improve confidence in the real estate sector and export of manufactured goods to other countries may help weather the tariff storm.

Japan

The declining yen fuelled tourism growth and luxury consumption in Japan in 2024. Historically, the Japanese equities market experiences post-election relief rallies. The Nikkei 225, which grew 19.85% in 2024, is expected to hit 45,000 by December 2025. Meanwhile, the Bank of Japan (BoJ) is expected to raise borrowing costs further in 2025. The reduced interest rate differential between the EU, US and Japan may drive JPY demand.

Keep an eye on the latest news and market developments to make informed trading decisions.

To Sum Up

• Global economic growth is expected to remain around 3% in 2025.
• The US economy is forecasted to grow faster than expected.
• The EU may bear the brunt of US tariffs while lower interest rates may weigh on the EUR.
• Australia, Singapore and India are expected to outperform other APAC economies.
• Economic growth in China and Japan will depend on government policies and their impact.

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