What Is the Economic Outlook for 2025?

With 2024 now behind us, the year ahead promises to be all the more dramatic. The times in which we live remain historically intense. At this very particular moment when two worlds are separating, the decades to come are being written today. 2025 will therefore be marked by the accelerated development of all the phenomena of the time (intensification of geopolitical conflicts, reinforced fragmentation between the countries of the North and South, increasing global indebtedness, etc.), but also by the eruption of new revolutions (technological, industrial, medical, human, etc.) In this new world order where force prevails, we need to be prepared for all eventualities.

A year of upheaval for 2024

Last year was marked by major political events. More than half of the population went to the polls. Most of the elections were known in advance: in Russia, India, and Turkey, presidents were returned to office with flying colors. 

Their appointment promises the acceleration of the world that is taking shape today: a multipolar world, marked by strong leadership and a focus on national interests. On the other hand, the main unknown was the American election, which ended in a vote of resistance. Trump's election did not mark a break with the past, but, on the contrary, a desire to preserve it. The new American president intends to make the United States the world's leading power for another term, if not longer. This will involve an unchallenged defense of the dollar, as demonstrated by his recent statements, but also a highly protectionist economic policy (higher tariffs, massive deregulation, lower taxes, etc.), and a reinforced military-industrial complex. All things being equal, heavy-handed political intervention and foreign interference are to be expected throughout Trump's term. In the space of just a few weeks, the new American president has threatened to leave NATO, rename the Gulf of Mexico the “Gulf of America”, impose tariffs on all countries frontally opposed to American domination, establish a stranglehold on the independence of the central bank... 

Other events took some by surprise. In Europe, the rise of so-called “radical” parties has served as a reminder that the idealistic European project - embodied by globalization - is colliding with contemporary changes. Parliament is now more polarized between Euroskeptics and pro-Europeans, and this shift is still in its early stages. In France, too, parliamentary elections were accelerated by the dissolution of the National Assembly, provoking a profound political crisis in addition to economic uncertainty, as the cost of France's debt continues to rise on the markets.

Geopolitical conflicts also intensified. The war in Ukraine continued to escalate, with a major offensive by Russian forces. In Sudan's Darfur region, clashes have escalated, while in the Sahel, attacks by armed groups have struck numerous countries, including Mali, Burkina Faso and Niger... Meanwhile, the Middle East has become a tectonic plate, and is currently undergoing a historic redrawing of its borders. The fall of Bashar Al Assad is reshuffling the cards in the region and promises a heightening of tensions between the world's major powers. 

2025: towards major changes?

In an article published last year, we predicted a number of things for 2024. The only one that failed to materialize was the global financial crisis, which could originate from both governments and systemic companies. Such an event on a global scale remains unpredictable in terms of temporality; it's a black swan, to use Nassim Nicholas Taleb's expression. Time matures things. Nevertheless, the situation remains not only far more dangerous than in 2008 (particularly in terms of private and public debt), but is also manifesting itself, for the time being, in other anticipated events. In particular, the economic downturn has generally continued in advanced countries. Corporate insolvencies and bankruptcies reached record levels in Europe and the United States. Consumer defaults are multiplying, and widespread impoverishment is growing, as evidenced by rising inequality. Many European countries, including Germany, Austria, Ireland and Finland, are also in recession. On the other hand, China's economy is slowing sharply, and the 5% growth target remains an obvious utopia. Given its influence on world foreign trade, this does not bode well for international growth.

Moreover, as anticipated last year, gold price has made spectacular progress, for reasons as diverse as global uncertainty, geopolitical tensions and the desire for sovereignty expressed throughout the world. The return to a less restrictive monetary policy, with successive interest rate cuts, notably in the United States, has also had a positive influence on gold (although its evolution is now decorrelated from the evolution of US bond yields). Gold finally ended the year on highs that are now appearing as a new reality to all watching. Moreover, demand for physical gold continues to grow: the first quarter posted the best results since 2016, while the second and third quarters saw unprecedented levels of demand. 

For the year 2025, several elements are to be expected:

• The emergence of new conflicts: Nothing rules out an escalation between Israel and Iran in the Middle East, a conflict over Taiwan involving China, North Korean aggression against South Korea, and military escalation in the South China Sea between Japan and China over the rare earths issue. These conflicts would involve the major powers in a trade war, which could once again disrupt global supply chains...
• Inflation, which has started to rise again, will remain above 2% and reach or even exceed 3% in most advanced economies. For reasons as diverse as geopolitical conflicts will create shortages in various sectors (industrial, food, health, etc.), global military and social spending will continue to rise sharply, protectionist policies will lead to targeted price rises, and inflation will continue to play its role in reducing the burden of debt. Against this backdrop, it is highly likely that the world's major central banks will join forces to set a new price stability target of 3%.
• Gold will maintain its current level at a minimum, and even continue to rise towards $3,000 an ounce by the end of the year. In particular, central banks will be increasing their gold reserves, in line with what they are doing today and to guard against currency risks and the ongoing currency war. In this respect, China will be increasingly aggressive, as its inability to stimulate domestic demand, and the sustained slowdown of its economy, forces it to look increasingly beyond its borders.
• The US economy will post better-than-expected results (in terms of growth and employment) and the dollar will continue to rise for at least half the year. The Trump administration's policies are enabling the United States to play its latest cards aggressively. Both through very strong investment in the private sector, successive tax cuts, but also through support for the financial sector thanks to numerous anti-trust and deregulation laws. 
• The euro will depreciate further and remain close to parity with the US currency: The ECB will maintain lower interest rates than the US central bank, in order to boost the competitiveness of European countries - not just those in the south, but all member states from now on - as well as to reduce the burden of public debt in the eurozone. And all this at a time when European countries are preparing to take on historic levels of debt by 2025...

The coming year will therefore be a particularly antagonistic one. On the one hand, we will see new revolutions in terms of innovation (in technology, food, health, biochemistry, etc.), but on the other, we will witness the eruption of new conflicts that will give us the impression of a step back in history; that human barbarity never stops, despite the presence of democracies. The world economy, on this very narrow path, will be slow, despite strong investment and higher inflation than in past decades. In the current landscape, the need for a major world economic conference, on the model of Bretton Woods in 1944 or the Genoa Accords in 1922, to redesign the international financial system and pacify relations between the major powers, is clearer than ever.

It remains to be seen whether this conference will take place before or after further tragic events...