January Market Commentary
A fresh year is upon us, and with it comes a renewed focus on what lies ahead for personal finances and investments. The global economy in 2025 promises to bring new challenges and opportunities, influenced by major political shifts, policy changes, and fluctuating economic conditions. Let’s take a closer look at the current landscape and what it means for the months ahead.
The Big Picture
The global economy remains a mixed bag as we step into 2025. On the one hand, the United States seems poised for continued growth, buoyed by a resilient labour market and a dose of political predictability under President Trump’s second term. Meanwhile, the UK and Europe are grappling with slower growth and ongoing inflation concerns, compounded by a range of tax and regulatory adjustments.
Emerging markets and the Far East offer some bright spots, but uncertainties surrounding trade policies, particularly from the US, could cloud the horizon. Amid these dynamics, diversification remains the cornerstone of a sound investment strategy, helping to mitigate risks while capitalising on growth opportunities.
United Kingdom
The UK enters 2025 on cautious footing. Economic growth is projected at 1.7% for the year, bolstered by government spending and a gradual easing of interest rates. However, inflation remains stubbornly above the Bank of England’s 2% target, with December figures highlighting ongoing price and wage pressures.
Business confidence has taken a hit, with surveys revealing a decline in optimism among firms. Rising employer costs, particularly from higher National Insurance rates, and subdued investment intentions are raising red flags for policymakers. At the same time, the job market is showing signs of strain, with recruitment slowing to its weakest level since late 2023.
Despite these headwinds, the FTSE 100 ended 2024 on a high note, notching its best performance since 2021. Investors may find opportunities in the equity market, even as broader economic indicators paint a challenging picture.
Europe
Europe’s economic recovery remains fragile following a turbulent 2024. The eurozone is grappling with weak growth, marked by a contraction in manufacturing activity. Although the services sector shows signs of stabilisation, it’s not yet enough to drive significant improvement across the board.
Interest rate cuts from the European Central Bank have provided some relief, and further reductions are anticipated in 2025. However, the spectre of potential trade tariffs from the US, coupled with lingering political uncertainties, means caution is warranted when considering European investments.
United States
The US continues to display economic resilience, with GDP growth expected to maintain its momentum in 2025. While inflation remains above target, the Federal Reserve has taken a measured approach, cutting rates in December to create some breathing room for borrowers and businesses.
President Trump’s return to office has injected a new layer of uncertainty into trade and fiscal policies. The impact on global markets, particularly emerging economies, will depend on how these policies evolve. Nevertheless, the US stock market has weathered the political and economic noise, benefiting from strong corporate earnings and robust consumer spending.
Far East
China achieved its 2024 growth target of 5%, thanks in large part to massive fiscal stimulus. However, structural challenges such as weak domestic consumption and a lingering property crisis continue to weigh on its economy. The potential for increased US tariffs under Trump’s administration adds another layer of complexity.
Japan, on the other hand, is enjoying a period of strong market performance, with the Nikkei 225 closing 2024 near record highs. While inflation remains a concern, policymakers are cautiously optimistic about achieving their targets this year.
Emerging Markets
Emerging markets ended 2024 on a positive note, but the road ahead is uneven. India and South Africa have shown robust growth, while countries like Brazil face mounting economic pressures. Trade tensions, fluctuating commodity prices, and a strong US dollar are likely to be key drivers of performance in 2025.
For investors, selective exposure to emerging markets – particularly in sectors benefiting from technological advancements – could yield attractive returns. However, a watchful eye on global geopolitical developments is essential.
Staying the Course
As we look ahead to 2025, the economic landscape may seem daunting at times. Inflation, interest rates, and political shifts are all factors that could shape market performance. However, history has shown that maintaining a disciplined, long-term approach to investing pays off. Diversification remains critical, ensuring that no single sector or geography disproportionately affects overall portfolio performance.
For UK investors, it’s also vital to make the most of tax-efficient savings and investment opportunities. With the tax year-end approaching in April, consider maximising ISA and pension contributions to safeguard your wealth and prepare for future growth.