Transcript
Host (0:00)
2024 was a year of transition for economies and global markets. Central banks began easing interest rates, US Elections signaled significant policy change, and generative AI made a quantum leap in adoption and development. Thank you for listening throughout 2024 as we navigated the issues and events that shape financial markets and society. We hope you'll join us next year as we continue to bring you the most up to date information on the financial world this week. Please enjoy some encores of episodes over the last few months and we'll be back with all new episodes in January from all of us at Thoughts on the Market Happy Holidays and a very happy New Year.
Vishy Thiru Pattor (0:41)
Welcome to Thoughts on the Market. I'm Vishy Thiru Pattor, Mogastali's chief fixed Income Strategist. Today in the podcast we are hosting a special roundtable discussion on what's ahead for the global economy and markets in 2025. I'm joined by my colleagues Seb Carpenter, Global Chief Economist Mike Wilson, chief U.S. equity strategist and the firm's Chief Investment Officer and Andrew Sheets, Global Head of Credit research. It's Monday, November 18th at 10:00am in New York. Gentlemen, thank you all for taking the time to talk. We have a lot to cover and so I'm going to go right into it. Seth, I want to start with the global economy. As you look ahead to 2025, how do you see the global economy evolving in terms of growth, inflation and monetary policy?
Seth Carpenter (1:28)
I have to say it's always difficult to do forecasts, but I think right now the uncertainty is even greater than usual. It's pretty tricky. I think if you do it at a global level, we're not actually looking for all that much of a change around 3ish percent growth, but the composition is surely going to change some. So let's hit the big economies around the world. For the US we are looking for a bit of a slowdown. Now some of that was unsustainable growth this year and last year. There's a bit of waning residual impetus from fiscal policy that's gonna come off in growth rate terms. Monetary policy is still restrictive and there's some lags effects there. So even though the Fed is cutting rates, there's still gonna be a little bit of a slowdown coming next year from that. But I think the really big question you alluded to this in your question is what about other policy changes here? For fiscal policy, we think that's really an issue for 2026. That's when the Tax Cut and Jobs act tax cuts expire. And so we think there's going to be a fix for that, but that's going to take most of 2025 to address legislatively. And so the fiscal impetus really is a question for 2026. But immigration tariffs, those matter a lot. And here the question really is, do things get front loaded? Is it everything all at once right at the beginning? Is it phased in over time, a bit like it was over 2018? I think our baseline assumption is that there will be tariffs, there will be an increase in tariffs, especially on China, but they will get phased in over the course of 2025. And so as a result, the first thing you see is some increase in inflation, and it will build as the tariffs build. The slowdown from growth, though, gets backloaded to the end of 2025 and then really spills over into 2026. Now, Europe is still in a situation where they've got some sluggish growth. We think things stabilize, we get 1% growth or so. So not a further deter, not a huge increase that would make you super excited. The ECB should probably keep cutting interest rates. We actually think there's a really good chance that inflation in the euro area goes below their target. And so as a result, what do we see? Well, the ECB cutting down below their best guess of neutral. They think 2% nominal is neutral, and they go below that. China is another big curveball here for the forecast because they've been in this debt deflation spiral for a while. We don't think the pivot in fiscal policy is anywhere near sufficient to ward things off. And so we could actually see a further slowing down of growth in China in 2025 as the policymakers do this reactive kind of policy response. And so it's going to take a while there. And we think there's a downside risk there on the upside. I mean, we're still bullish on Japan, we're still very bullish on India and its growth. And across other parts of em, there are some bright spots. So it's a real mixed bag. I don't think there's a single trend across the globe that's going to drive the overall growth narrative.