2025 Economic Outlook

In our opinion, economic growth, inflation, labor markets, and global dynamics are all key areas to watch as we move into 2025. Here’s a closer look at what we might expect in the coming year.

Overall Economic Growth: 2.1%

Economic growth in 2025 is projected to see a year-over-year expansion of 2.1%.(1)

This growth could be driven largely by favorable supply-side factors, including higher productivity growth and an increase in available labor. While these factors are expected to contribute positively, emerging policy risks, including trade tariffs and tighter immigration policies, could potentially offset some of these gains.(1)

Inflation: 2.5%

Inflation is anticipated to remain elevated, with core inflation projected to be 2.5% for most of 2025.(1) 

Policy risks related to trade and immigration hold the potential to increase inflationary pressures.(1)

Although inflation is expected to decrease modestly by the end of the year, core PCE inflation may slow to 2.4% by late 2025, higher than Goldman Sachs Research’s prior forecast of 1.9%.(2)  

The forecast could rise to around 3% if the US imposes an across-the-board tariff of 10%.(2)

“In a Consumer-Driven Economy, Mind the Labor Market”(1)

While unemployment rates have gradually increased from 3.4% in early 2023 to 4.1%, the job-loss rate focuses on demand. “Reduced demand is a more worrisome economic signal than increased supply. The job-loss rate is a good barometer, as it measures the probability of a worker becoming unemployed in any given month.”(1)

GDP Growth: US, Global Economy Projected to Expand

The global economy is projected to expand at an annual growth rate of 2.7% in 2025, slightly above the expected growth in 2024. U.S. GDP is forecast to grow by 2.5%, ahead of the consensus estimate of 1.9%. The Eurozone, on the other hand, is expected to see slower growth, with projections of 0.8%.(2)

Despite slower growth in the world's two largest economies, the U.S. and China, other global regions are expected to experience improvements. Notably, “not one of the top 45 global economies are expected to enter a recession next year.”(3)

Global Economic Outlook

2025 may bring heightened volatility to global stock markets due to uncertain trade policies, tighter fiscal policies, and slower-than-average growth in both the global economy and corporate earnings. “Rising valuations, supported by central bank rate cuts, are likely to boost returns for stocks in the developed international MSCI EAFE Index.”(3)

If we look to history, we’ll find that threats of extreme tariffs may simply be negotiation strategies leading towards agreements with China and other countries. In that case, there is potential for far less disruption of economic growth, inflation, sales, and the operations of multinational corporations.(3)

Closing Thoughts

While the U.S. economy is expected to remain resilient, emerging challenges such as inflationary pressures, labor market shifts, and global trade risks warrant careful attention. 

As always, it's important to keep in mind that no outcome can be guaranteed, and the economic landscape can shift in unexpected ways. Being prepared and vigilant will remain essential as we move through 2025.

Article Sources:

(1) Vanguard. “Our economic outlook for the United States.” Vanguard, November 27, 2024. 

(2) Goldman Sachs Outlooks. “The global economy is forecast to grow solidly in 2025 despite trade uncertainty.” Goldman Sachs, November 15, 2024.

(3) Kleintop, Jeffrey. “2025 Global Outlook: Clearing the Hurdles.” Charles Schwab, December 2, 2024.