- The US economy continues to outperform its peers, with real GDP growth expected to reach 2.8 per cent in 2024
- While global inflation has decreased sharply over the last two years, the path to disinflation has been uneven across countries
- Higher interest rates, coupled with supply-side challenges, could lead to increased market volatility
- The long-term outlook for the global economy is shaped by a complex interplay of factors, including policy shifts, interest rates, and supply-side dynamics
2025 has been a rough year, no doubt. The global economic landscape continues to evolve, influenced by various factors including policy shifts, inflation trends, and market dynamics. Here are some key insights from leading economists and financial analysts on the long-term outlook:
Economic resilience and policy shifts
Economists from Deloitte highlight that while the United States has experienced strong growth, other advanced economies have faced challenges. The US economy continues to outperform its peers, with real GDP growth expected to reach 2.8 per cent in 2024. Despite elevated interest rates, consumer spending has grown strongly, supported by a tight labor market and stronger inflation-adjusted wage growth. Business investment has also held up well, largely due to industrial policies that have spurred factory construction.
However, as 2025 begins, there is uncertainty due to potential policy shifts following numerous elections around the world. New policies could lead to changes in inflation, borrowing costs, currency values, trade flows, capital flows, and production costs.
Impact of higher interest rates
Vanguard’s 2025 economic and market outlook emphasizes the profound implications of a higher-for-longer interest rate environment. While global inflation has decreased sharply over the last two years, the path to disinflation has been uneven across countries. The United States has seen an accelerating economy despite restrictive monetary policy.
Vanguard’s economists suggest that higher interest rates can be celebrated for their potential to create solid cash and fixed income returns over the next decade. However, they caution that this environment will also bring increased volatility as the market adjusts to the new normal. For long-term investors, maintaining a diversified portfolio and focusing on fixed income as a ballast will be crucial.
Supply-side forces and market disruption
McKinsey’s global economic outlook report underscores the importance of supply-side forces in shaping the trajectory of markets. These forces have the potential to disrupt the Federal Reserve’s soft-landing scenario. Higher interest rates, coupled with supply-side challenges, could lead to increased market volatility.
McKinsey’s survey of economic conditions reveals that respondents’ expectations for the global economy are largely stable, with more positive than negative outlooks. However, the long-term outlook remains uncertain, with potential disruptions from policy changes and economic shifts.
A closer look
The long-term outlook for the global economy is shaped by a complex interplay of factors, including policy shifts, interest rates, and supply-side dynamics. Economists and financial analysts emphasize the importance of diversification, resilience, and staying informed about market trends. By adopting a long-term perspective and making strategic investment decisions, investors can navigate the uncertainties of 2025 and beyond.
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(Top image generated with AI.)