Newsletter
January 2025
Economic conditions
Despite rising hopes for strong economics growth, there has been an increase in trade tension between the US and China. Trade talks have stalled and each side has threatened to reintroduce tariffs that had been reduced or removed in the last round. Economists warn that this would only exacerbate the economic slowdown. However, rhetoric is rising, not just between the US and China but also between the US and the European Union. EU plans to tax the sales of US technology companies such as Google and Apple have been met by American threats to adopt tariffs and quotas for key European exports to the US.
Projections
| Indicator | 2024 | 2025 | 2026 | 2027 |
|---|---|---|---|---|
| World growth | 2.5 | 2.5 | 2.5 | 3.0 |
| US GDP | 2.5 | 2.0 | 2.5 | 3.0 |
| US Inflation | 2.0 | 2.2 | 2.5 | 2.5 |
| US Unemployment | 3.0 | 3.2 | 3.5 | 3.5 |
| US bond yield | 3.0 | 3.0 | 3.5 | 4.0 |
Asset classes
US stock (SPY) rose sharply after a quite first half to 2024. Evidence that the US economy is experiencing broad-based growth without inflation provides support to the optimism about the effects of new technology on productivity and the potential growth rate of the economy. The belief that a higher level of underlying growth can be achieved with stable interest rates has underpinned the strength of US and emerging (EEM) equities.
US Government bonds (TLT) fell in the middle of 2024 as strong economic growth raised concern about inflation and higher interest rates. However, the low level of price pressure and the reassuring words from the US central bank have encouraged a rebound in bond prices in the second half of the year. Government bond yields are expected to rise in 2025 but this long-held expectation has been disappointed before.
Corporate bonds (JNK) have risen in the second half of the year with a reassessment of the likely peak in interest rates and funding costs. The low level of bankruptcies is encouraging.