2025 Global economic growth projects at 3% in real and 6% in nominal terms.
The US economy had a remarkable year – a feat no other global economy accomplished.
The equity market moved higher in the fourth quarter of 2024 as the outcome of the US presidential election was definitive, and the underlying economy continued to demonstrate resilience. The US economy had a year of steady, strong growth and moderate, declining inflation. Several developments supported this impressive outcome, including normalized supply chains, labor availability, fiscal initiatives, and noteworthy increases in capital spending and productivity growth. For most of the year, monetary policy was restrictive, and real rates remained high even after recent Fed recalibration steps.
Policy shifts
Over half the global population held elections in 2024, and politics dominated the news in the fourth quarter. As investors assess the timing and impact of policy proposals in the new year, the range of potential outcomes has widened.
In the US, deregulation and tax cuts could enhance GDP growth, while tariffs and restrictive immigration policy could disrupt supply chains, dampen growth, and rekindle inflation. Inbound capital flows, moderating interest rates, and input costs could strengthen the US dollar. Due to the rather persistent inflationary pressures in the US, the Federal Reserve is expected to maintain the current level of interest rates for at least the next six months. Valuation and earnings expectations remain high, reinforcing the need for selectivity.
Easier monetary policy should help improve European investment conditions. Upcoming elections in Germany and a new government in France should result in greater fiscal impetus, as new coalitions seek to reinvigorate economic growth and industrial vibrancy.
Although the ruling Liberal Democratic Party lost its majority in a snap election, Japan’s domestic politics and international affairs look relatively stable. Higher Japanese inflation could awaken long-dormant domestic pricing power.
In South Korea, political turmoil has unsettled equity markets, but globally integrated industries – particularly memory chip production for AI – remain competitive. The impeachment process underscores the resilience of Korea’s democracy, though political paralysis may delay corporate governance reforms critical to restoring investor confidence.
China’s domestic demand remains sluggish, weighed down by deflationary pressures and a property market glut. Recent policy shifts reflect a more urgent pro-growth stance, emphasizing consumption as a recovery driver. Measures to stabilize housing, address local government debt, and boost consumption through trade-in subsidies aim to avoid a new boom-bust cycle. Structural challenges persist, but export resilience—especially to ASEAN—highlights China’s shifting trade dynamics despite looming tariff threats.
Trade barriers warrant caution
Actions by the Trump administration in the US are expected to curtail global trade, which weighed on sentiment for international assets. Tariffs could create volatility in export-driven Asian economies. Evolving trade dynamics and global supply chain shifts are reasons for cautious optimism.
Despite the potential for volatility, international valuations look increasingly attractive, with the MSCI ACWIxUS offering a nearly 40% discount to the S&P 500, the largest in over twenty years. In a reversal from the 2011 Euro crisis, peripheral European economies appear better situated, with service exports, primarily tourism, less exposed to rising trade tensions. Over the long term, we believe Europe’s commitment to net zero and social initiatives will help earnings growth and lower risk.
EM fundamentals remain resilient. Intra-EM trade has now surpassed 50%, underscoring structural shifts in global supply chains, and EM GDP growth is projected to outpace developed markets twofold over the next five years. While geopolitical tensions and limited monetary policy flexibility in some EM countries remain headwinds, EM equities trade at a steep 60% discount to the S&P 500, supported by structural growth drivers like green infrastructure, digitalization, and rising domestic consumption.
In this piece:
2025 Global economic growth projects at 3% in real and 6% in nominal terms.
The US economy had a remarkable year – a feat no other global economy accomplished.
The equity market moved higher in the fourth quarter of 2024 as the outcome of the US presidential election was definitive, and the underlying economy continued to demonstrate resilience. The US economy had a year of steady, strong growth and moderate, declining inflation. Several developments supported this impressive outcome, including normalized supply chains, labor availability, fiscal initiatives, and noteworthy increases in capital spending and productivity growth. For most of the year, monetary policy was restrictive, and real rates remained high even after recent Fed recalibration steps.
Policy shifts
Over half the global population held elections in 2024, and politics dominated the news in the fourth quarter. As investors assess the timing and impact of policy proposals in the new year, the range of potential outcomes has widened.
In the US, deregulation and tax cuts could enhance GDP growth, while tariffs and restrictive immigration policy could disrupt supply chains, dampen growth, and rekindle inflation. Inbound capital flows, moderating interest rates, and input costs could strengthen the US dollar. Due to the rather persistent inflationary pressures in the US, the Federal Reserve is expected to maintain the current level of interest rates for at least the next six months. Valuation and earnings expectations remain high, reinforcing the need for selectivity.
Easier monetary policy should help improve European investment conditions. Upcoming elections in Germany and a new government in France should result in greater fiscal impetus, as new coalitions seek to reinvigorate economic growth and industrial vibrancy.
Although the ruling Liberal Democratic Party lost its majority in a snap election, Japan’s domestic politics and international affairs look relatively stable. Higher Japanese inflation could awaken long-dormant domestic pricing power.
In South Korea, political turmoil has unsettled equity markets, but globally integrated industries – particularly memory chip production for AI – remain competitive. The impeachment process underscores the resilience of Korea’s democracy, though political paralysis may delay corporate governance reforms critical to restoring investor confidence.
China’s domestic demand remains sluggish, weighed down by deflationary pressures and a property market glut. Recent policy shifts reflect a more urgent pro-growth stance, emphasizing consumption as a recovery driver. Measures to stabilize housing, address local government debt, and boost consumption through trade-in subsidies aim to avoid a new boom-bust cycle. Structural challenges persist, but export resilience—especially to ASEAN—highlights China’s shifting trade dynamics despite looming tariff threats.
Trade barriers warrant caution
Actions by the Trump administration in the US are expected to curtail global trade, which weighed on sentiment for international assets. Tariffs could create volatility in export-driven Asian economies. Evolving trade dynamics and global supply chain shifts are reasons for cautious optimism.
Despite the potential for volatility, international valuations look increasingly attractive, with the MSCI ACWIxUS offering a nearly 40% discount to the S&P 500, the largest in over twenty years. In a reversal from the 2011 Euro crisis, peripheral European economies appear better situated, with service exports, primarily tourism, less exposed to rising trade tensions. Over the long term, we believe Europe’s commitment to net zero and social initiatives will help earnings growth and lower risk.
EM fundamentals remain resilient. Intra-EM trade has now surpassed 50%, underscoring structural shifts in global supply chains, and EM GDP growth is projected to outpace developed markets twofold over the next five years. While geopolitical tensions and limited monetary policy flexibility in some EM countries remain headwinds, EM equities trade at a steep 60% discount to the S&P 500, supported by structural growth drivers like green infrastructure, digitalization, and rising domestic consumption.
This piece is intended as an editorial review of a survey of risk considerations and does not constitute investment advice, a solicitation, or an offer to buy or sell any security. Past performance does not guarantee future results. All investments involve risk, including the risk of loss of principal.
References to third-party research, publications, and data sources are provided for informational purposes only. Boston Common Asset Management does not warrant the accuracy or completeness of third-party information cited herein. Readers should consult original sources and qualified professional advisors before making any investment decision.