Outlook 2025: Bob Homan (ING Investment Office)
This text was originally written in Dutch
By Bob Homan, Chief Investment Officer, ING Investment Office
What is the economic outlook for 2025?
'Major central banks started cutting interest rates in 2024 and we think they will continue this in 2025. With inflation currently falling, policy is still so tightening that there is plenty of room for this. This does not mean that we also expect somewhat longer capital market rates to fall along. On the contrary. Although short-term interest rates are being lowered, central banks are selling longer-term bonds (‘quantitative tightening’) and there is also a supply of bonds due to the large government deficits that need to be financed. In addition, the expected policies of the Trump administration will fuel inflation through import tariffs and immigration restrictions. So no lower capital market yields in the US, and as these also strongly influence interest rates elsewhere, we expect slightly higher capital market yields in Europe too. No price gain for government bonds, then. But at current levels, we do find the effective yield attractive.
In terms of economic growth, in our view the picture remains similar to this year: reasonably healthy growth in the US and muddling through in Europe. Growth in the Chinese economy is expected to be just under 5%. On a global scale, this means growth of around three per cent, which is not much historically, but stable compared to previous years.
Still, we expect earnings growth for companies. We even expect an acceleration, as the basis of comparison has become easier. Earnings growth this year was driven by only a handful of companies, mainly from the IT sector (the Magnificent 7), while at many other companies, earnings barely grew or even fell. With slightly rising capital market interest rates, valuations quite high - especially in the US - and risk premiums down considerably, we expect returns in global equity markets to fall short of the average earnings growth expectation for global equities of 12%.'
Reasonably healthy growth in the US and muddling through in Europe.