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    RESEARCH  |  3 POINT PERSPECTIVE  |  MACRO SHIFTS

    Q1 2025 Global Outlook: Room for optimism

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    Contributors: Ajay Rajadhyaksha & Amrut Nashikkar
    13 Nov 2024

    The US is resilient, China is stimulating, inflation has dropped across the West, and central banks are cutting rates. The main risk to the global economy is a trade war, according to our Research analysts.

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    Sunrise over a mountainous landscape showing an optimistic outlook for the global economy
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    1. The macro backdrop is attractive

    Yes, there have been setbacks lately. The US jobs report for October seemed a little weak, even after adjusting for hurricanes and strikes. The UK budget was poorly received by the gilt market. Japan’s political situation is fragile, with any new coalition likely to be shaky.

    But consider the big picture. The US has been very resilient, growing around 3% in recent quarters; the jobless rate is still 4.1% and November payrolls are likely to see a sharp bounce-back. The euro area is growing at trend. China has finally started stimulating. Oil prices remain low even with the war in the Middle East into its second year. Inflation across the West has been falling. And central banks have started easing despite low jobless rates.

    2. But keep a wary eye on trade policy

    The weighted-average tariff on all US imports is currently 2%. That could rise as high as 17%, under the plan outlined by Donald Trump on the campaign trail.

    But our Research analysts think the president-elect should be taken seriously but not literally. In his first term, he used the threat of tariffs to get new trade deals with Mexico and Canada. He also equates stock market returns with economic success. If equities fall because high tariffs seem likely, the new administration could well soften its stance.

    Immigration policy will also be in focus. Our analysts’ expectation is for new arrivals to slow considerably, but for deportations to run at the same pace as in the Obama presidency – and far slower than the campaign has promised. On the growth-positive side are the prospect of significant deregulation and a fiscal boost, assuming all the expiring tax cuts are extended. 

    All in, our Research analysts see US growth dropping from a near-3% rate to a still-healthy 2% in 2025. Global growth should slow just a little, to 3%, from 3.2% in 2024.

    3. Asset allocation is a difficult call

    US Treasuries look fairly priced but still not cheap, given solid US growth, the prospect of higher issuance in 2025, and rapidly rising deficits, if all the tax cuts from 2017 are extended.

    The US dollar still has scope to strengthen further, despite interest rate cuts from the Federal Reserve, given continued US resilience and tariffs. Equity valuations are elevated after two years of 20-25% returns in the S&P500, and 2025 earnings expectations seem a little optimistic to our analysts.

    But momentum and hopes for a lighter-touch regulatory regime should push equities higher for now, along with a collective exhale after the elections. A “melt-up” into year-end is a real possibility.

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    About the experts

    Ajay Rajadhyaksha

    Global Chairman of Research

    Ajay Rajadhyaksha is Global Chairman of Research at Barclays, based in New York. He drives the global macro research and strategy effort, including economics, rates, FX, commodities, emerging markets, and asset allocation. Since joining Barclays in 2005, Ajay has held various positions, including Head of Macro Research, Co-Head of FICC Research and, before that, Head of US Fixed Income Research and US and European Securitised Research.

    Amrut Nashikkar

    Managing Director, Fixed Income Strategy

    Amrut Nashikkar is a Managing Director in the Fixed Income Strategy team at Barclays based in New York, covering interest rate derivatives with a focus on interest rate volatility and the Libor transition. Amrut joined Barclays in 2008 from Lehman Brothers, where he was an interest rate strategist. Prior to that, he taught at New York University, where he graduated with a PhD in finance. He also holds a management degree from the Indian Institute of Management, Ahmedabad, and an undergraduate degree in engineering from the Indian Institute of Technology, Kharagpur.

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