December 2024

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Global Macr
MacrooT
Themes
hemes
For 20
2025
25
Mor
More
eVVola
olatility
tility Ahead
Report Summary
 Global Macro Themes For 2025 More Volatility Ahead | December 2024

Contents
Executive Summary...................................................................................................................................................................... 4
Global Macro Key Themes For 2025: Executive Summary .......................................................................................................................................... 4

Regional Key Themes ................................................................................................................................................................... 5

BMI Global Macro Key Themes For 2025 ............................................................................................................................................................................ 5
Asia Macro Key Themes For 2025: Elevated Uncertainty For 2025 Economic Outlook Amid Political And Fiscal Challenges .....15
Latin America Macro Key Themes For 2025: Quiet Electoral Calendar And Unchanged Regional Growth Forecast Mask
Interesting Underlying Trends...............................................................................................................................................................................................21
Europe Macro Key Themes For 2025: Elevated Geopolitical Risk Exacerbates Existing Structural Deficiencies.................................30
MENA Macro Key Themes For 2025: Geopolitical Challenges In Levant Will Overshadow Positive Economic Momentum
Elsewhere ......................................................................................................................................................................................................................................38
Sub-Saharan Africa Macro Key Themes For 2025: Stronger Headline Growth But Structural Vulnerabilities Persist .......................45

ToC

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Copyright © 2024 Fitch Solutions Group Limited.

This commentary is published by BMI – A Fitch Solutions Company, and is not a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from BMI and independent
sources. Fitch Ratings analysts do not share data or information with BMI.

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 Global Macro Themes For 2025 More Volatility Ahead | December 2024

Executive Summary
Global Macro Key Themes For 2025: Executive Summary
Many of the themes that characterised 2024 are expected to persist into 2025. However, there will variations in emphasis as the
composition of global growth undergoes slight adjustments, political risk lessens and tensions in the Middle East decrease.

The Economy: The Same But Different

Our forecast for global growth in 2025 is 2.6%, which is similar to our estimate for 2024. However, this assumes that the upcoming
Donald Trump administration in the US will adopt a pragmatic policy stance, which will limit the fallout from tariffs. Our outlook is
also based on three key views. First, while the global growth picture appears unchanged, we expect regional growth drivers to shift,
with slower growth in Mainland China and the US being offset by rising growth in Europe and the Middle East and North Africa.
Second, there is scope for a recovery in the manufacturing cycle as post-Covid trends normalise. Third, we expect a modest
improvement in productivity as the artificial intelligence boom begins to translate into output and the Trump deregulation policies
take effect.

Tariffs Present Risks

All of these projections are contingent upon the assumption that the Trump administration’s policies will not generate additional
uncertainty. While we believe that tariff threats are likely to be a negotiating ploy, in the event they are implemented, large blanket
tariffs will negatively impact economies that are highly reliant on US demand, particularly Vietnam, Cambodia and Mainland China.
Tariffs will also be inflationary, particularly for the US, though the extent of the global inflation threat will depend on the extent to
which other markets retaliate. Page 1
The Policy Response

The global monetary easing cycle that began in 2024 is expected to continue into 2025 as inflation remains muted, with the US
Federal Reserve cutting rates by 100 basis points during the year, allowing central banks in Europe and Asia in particular to engage
in cautious monetary easing. Fiscal consolidation is likely to be an ongoing policy priority, possibly more in the breach than in the
observance. A number of economies will come under pressure to raise defence spending if they are to continue to benefit from US
security guarantees.

Ongoing Political Uncertainty

Anti-incumbent sentiment remains a motivating political force. Though the 2025 election calendar will be less busy than in 2024,
there is a high risk of government leadership changes in Germany, Japan, Australia and Canada, as well as a number of Asian and
Latin American markets, as governments pay the price for the recent spike in inflation.

War And Peace

The ceasefire between Israel and Lebanon and the end of the war in Gaza, which we expect by mid-2025, will bring some stability to
the Middle East. However, social stability risks in the Levant will remain elevated as highly polarised, sectarian societies try to come
to terms with the events since October 2023. In Europe, we believe the upcoming Donald Trump administration in the US will seek
to coerce Ukraine into negotiations by withdrawing US support. However, Russia is unlikely to earnestly engage in peace
negotiations as it believes it can extract preferable territorial outcomes against a weakened Ukraine on the battlefield. We thus
retain our core scenario for the progression of the war, which envisions continued, high-intensity fighting over 2025.

This commentary is published by BMI – A Fitch Solutions Company, and is not a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from BMI and independent
sources. Fitch Ratings analysts do not share data or information with BMI.

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 Global Macro Themes For 2025 More Volatility Ahead | December 2024

Regional Key Themes

BMI Global Macro Key Themes For 2025
We have identified eight major economic and political themes that will shape 2025. With the global economy already facing several
cross-currents, the US election in November 2024 could result in additional volatility if president-elect Donald Trump aggressively
pursues the policies outlined in his campaign. We believe a slightly more pragmatic, but transactional Trump will emerge, helping to
mitigate some of these risks.

Global Macr
MacrooK
Key
ey Themes FFor
or 2025
Theme View
1. Gr
Groowth TTo
oRRemain
emain SStable,
table, But Big Changes Ahead We forecast global growth to remain broadly stable at around 2.6%
in 2025, but the drivers of growth will change. We also see potential
for the manufacturing sector to improve and productivity to pick up.
2. TTariff
ariffss Will P
Pose
ose Do
Downside
wnside Risks TTo
o Gr
Groowth And Upside Risks TTo
o Large, blanket tariffs would hit economies that are highly reliant
Inflation on US demand, which include Mainland China, Mexico, Canada and
Vietnam. In addition to the direct impact of tariffs, there is potential
for higher inflation and interest rates.
3. Global Centr
Central
al Banks Continue TTo
o Ease, But Mor
Moree Cautiously A broad-based monetary easing cycle will continue in 2025. The
potential for heightened inflationary pressures under a second
Trump presidency could prompt global central banks to adopt a
more cautious approach to rate cuts than we currently envisage.
4. Rising Pr
Pressur
essuree TTo
o End MENA And Ukr
Ukraine
aine W
War
ars,
s, But Pushback TToo Page 2
oo The conflict in the Middle East will likely decrease in H1 2025, as
Israel further reduces the threat posed by Hamas and Hezbollah,
and emerges in a position of strength. We expect the Russia-Ukraine
war to continue at a high intensity despite Trump’s peace plan.
Conflict will reduce in intensity in late 2025, as both sides face
growing resource constraints.
5. TTrump
rump Will Hamper The P
Pac
acee Of Global Fiscal Consolidation NATO markets and many Asian economies will come under pressure
to raise defence spending to continue receiving US military support
during a Trump presidency. This will either entail higher budget
deficits or the politically unpopular option of cutting non-defence
spending.
6. Election Risks Subside, But FFour
our De
Devveloped Mark
Markets
ets FFac
acee Anti- Election-related political risks will subside in 2025 after the
Incumbency Risks exceptionally busy calendar of 2024. However, there is a high risk
of government leadership changes in Germany, Japan, Australia and
Canada amid considerable anti-incumbent sentiment. We also
anticipate considerable political noise in Argentina, Chile and
Mexico.
7. Ener
Energy
gy TTrransition Continues, But A
Att A Slo
Slowwer P
Pac
acee The rollout of renewable energy and other low-carbon technology
will slow in 2025, but this will be from a high baseline in most DMs
and several key EMs (including Mainland China and India), meaning
the global transition to a low-carbon economy will continue.
8. Risks TTo
o The Global EEcconomy R
Remain
emain Ele
Elevvated Risks to the global economy remain more elevated than usual for
three separate - but potentially re-enforcing - reasons, namely late-
cycle risks, geopolitical risks and the potential for a tightening of
financial conditions.

Source: BMI

This commentary is published by BMI – A Fitch Solutions Company, and is not a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from BMI and independent
sources. Fitch Ratings analysts do not share data or information with BMI.

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 Global Macro Themes For 2025 More Volatility Ahead | December 2024

Theme 1: Growth To Remain Stable, But Big Changes Ahead

In 2025, global economic growth is forecast to remain broadly stable at approximately 2.6%, similar to our estimate for 2024. This is
underpinned by the assumption that Donald Trump will be more pragmatic, which will limit the fallout from tariffs. In 2018, the
limited tariffs did not result in a significant increase in inflation, and the period between 2017 and end-2019 saw above-trend
average quarterly GDP growth of about 2.6%. There are three underlying trends that we believe are underappreciated. First, growth
drivers will shift across major economies and regions, concealing key changes at a more micro level. For example, growth in
Mainland China is expected to slow from 4.8% in 2024 to 4.5% in 2025, while the US economy is expected to decelerate from 2.7%
in 2024 to 1.9% in 2025. Other major economies will likely see growth accelerate for a variety of reasons. For example, growth in the
eurozone is projected to increase from 0.9% in 2024 to 1.5% in 2025, driven largely by Germany, which is expected to see growth
rise from flat in 2024 to 1.0% in 2025, supported by lower interest rates and improved consumer sentiment. Growth in Japan will
increase from 0.6% in 2024 to 1.0% in 2025, driven by a rise in real wages. In Saudi Arabia, we anticipate rapid growth from 1.0% in
2024 to 4.7% in 2025, supported by a significant increase in oil production and an improving non-oil economy in response to lower
interest rates.

Stable Growth, But Drivers Changing

Global - Real GDP Growth, % (LHC) & Growth In 2024 & 2025 (RHC)

Page 3

f = forecast. Source: BMI

Second, we see the potential for a strengthening of the manufacturing cycle, particularly in the US in 2025, which is a view we
highlighted in October. Four trends will likely see a rise in manufacturing activity:

1. Many goods with a shelf life of about four-to-six years that were purchased in advance during the Covid-19 pandemic
will likely need to be replaced in the coming years, which could increase manufacturing activity. An example is the
average age of a car, which has risen to a multi-decade high of 13.6 years, up from about 10 years in the early 2000s.
2. While many companies have accumulated higher levels of inventories, they have been drawing them down. If growth
holds up as expected, we could see an inventory rebuild, which would increase manufacturing activity.
3. Investment into manufacturing in recent years will result in increased output in 2025 as semiconductor plants and
electric vehicle plants come online.
4. While the election of Trump could see tariffs and a stronger US dollar negatively affect US manufacturing exports, an
increase in defence spending on US military goods by the US government and foreign allies could be positive for US
manufacturing equipment.

This commentary is published by BMI – A Fitch Solutions Company, and is not a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from BMI and independent
sources. Fitch Ratings analysts do not share data or information with BMI.

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 Global Macro Themes For 2025 More Volatility Ahead | December 2024

Manufacturing Could Benefit From Replacement Of Older Goods

US - Average Age Of Car, number of years

Source: Bloomberg, BMI

Third, we see the potential for a slight pick-up in productivity, though the timing and measurement of this is always difficult. This
could result from two trends. First, substantial investment in digitisation, robotics and artificial intelligence in recent years is
expected to continue. In addition, some deregulation by the Trump administration could help to remove hurdles for small business
formation and lead to additional innovation. Page 4

Theme 2: Tariffs Will Pose Downside Risks To Growth And Upside Risks To Inflation

Large blanket tariffs would negatively impact economies that are highly reliant on US demand. While China's exports to the US as a
share of GDP have decreased from approximately 6-7% in the 2000s to about 3.0% at present, insulating it somewhat from tariffs, a
significant increase in tariffs would still impact the economy. Other economies have significant direct trade exposure to the US as a
share of their GDP, including Mexico (27%), Canada (20%) and Vietnam 27%. However, it is also important to consider indirect
exposure. In the event of large tariffs on Chinese exports, this would pose downside risks to our forecast for Chinese growth of 4.5%
in 2025, and economies reliant on China's supply chain and domestic demand could be further impacted. As a result, other major
Asian markets that are exposed to both the US and Mainland China, such as Hong Kong, China; Singapore; Taiwan, China; Malaysia;
and South Korea would be most vulnerable.

This commentary is published by BMI – A Fitch Solutions Company, and is not a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from BMI and independent
sources. Fitch Ratings analysts do not share data or information with BMI.

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