UK Economic Growth May Lag Expectations in 2025

Economic

Summary:

Goldman Sachs Research expects continued growth from the UK economy in 2025, although its expansion may be slower than some economists anticipate.

Our economists forecast the UK’s GDP to increase 1.2% in 2025, which is slower than the Bank of England’s projection of 1.5% and just below the consensus estimate of economists surveyed by Bloomberg of 1.3%. The team forecasts 0.4% growth in the first three months of 2025 relative to the last three months of 2024, slowing to around 0.25-0.30% quarter on quarter in the rest of next year.

The British economy will be impacted by several key factors including uncertainty around trading arrangements with the US, a less expansionary budget, and proposed changes to the planning system for housing and development.

Our economists expect inflationary pressures to ease through 2025, introducing the potential for deeper interest rate cuts than the market has priced in. Market prices suggest the BoE will stop reducing interest rates at 4%, but our economists believe the central bank will continue cutting as far as 3.25%.

“We continue to think that the BoE will likely cut further than the market currently expects as measures of underlying domestic inflation fall back and demand comes in somewhat weaker than the Monetary Policy Committee’s latest forecast,” Goldman Sachs Research’s Chief European Economist Sven Jari Stehn writes in the team’s report, which is titled “UK Outlook 2025: A Gradual Pace, but More Cuts Than Priced.”

How will US tariffs impact the UK economy?

The UK’s trading arrangements will be a major focus next year. Uncertainty surrounding potential tariffs from the administration of US President-elect Donald Trump will likely weigh on confidence and is expected to notably reduce euro area growth. These tensions could also spill over into the UK, though probably to a lesser degree.

UK Economic Growth May Lag Expectations in 2025_1

Given the openness of the British economy, a global shift towards increased tariffs could hurt the country’s growth prospects. On the other hand, recent reports have indicated that the US may consider offering the UK a free-trade agreement in return for potential changes to food standards and greater market access for US healthcare companies.

The UK could also pursue closer ties with the EU: The government plans to strike a veterinary agreement, and Chancellor Rachel Reeves has hinted at regulatory harmonization in the chemicals sector. But the growth boost from these developments wouldn't be enough to meaningfully reduce the costs of Brexit, and it could run counter to closer trading relations with the US. UK Economic Growth May Lag Expectations in 2025_2

UK Economic Growth May Lag Expectations in 2025_2

The outlook for the UK budget

The UK’s autumn budget was more expansionary than expected, raising the prospect of stronger demand in the near-term. Even so, the updated plans still indicate consolidation in 2025, and growth is expected to cool in the second half of the year. The Office for Budget Responsibility will deliver a forecast update in the spring, which will be closely watched by markets.

“The government has left limited headroom against its new fiscal targets, and relatively small changes in the OBR’s macroeconomic forecasts could eliminate this headroom entirely,” Stehn writes.

Our economists think economic growth may prove lower than the OBR’s projections, increasing the chances that the OBR will revise its debt-to-GDP forecast upwards.

Planning reform could gradually boost UK GDP growth

The government also intends to reform the planning system for housing and development. Although it’s difficult to quantify the effect of the reforms without further policy details, our economists broadly expect the changes to result in a boost to residential investment over the next five years.

But the impact of any planning reforms on GDP growth over the medium term will depend on whether they increase labour productivity. A range of studies show that wages and productivity are higher in large cities, so relaxing planning restrictions could boost aggregate productivity by allowing urban areas to expand.

“Some studies have indicated that this effect could be sizeable in the very long run,” Stehn writes. “But we would expect any boost to productivity to occur gradually over an extended period of time.”

Inflation is forecast to ease in 2025

Inflation is expected to be firmer in the near term, easing throughout 2025. Public sector pay deals and government consumption following the autumn budget will support strong demand, while increases in vehicle excise duty and the introduction of VAT on private school fees could drive up prices in the services sector.

Nonetheless, Goldman Sachs Research sees domestic inflationary pressures falling back next year. Data from surveys conducted by the BoE suggest that tightness in the labor market is also likely to ease.

“This continued easing in labour market tightness — together with reduced catch-up effects now that inflation has returned close to target — are likely to result in a notable slowing in pay growth next year,” Stehn writes.

Reduced pay pressures are likely to result in services inflation declining gradually. This could lead to headline inflation undershooting the BoE’s latest projections: Our economists’ analysis puts headline inflation at around 2.3% in the final quarter of 2025, four-tenths below the BoE’s November forecast. They expect core inflation to fall to 2.5% by the end of next year.

The outlook for BoE rate cuts

Goldman Sachs Research expects the BoE to cut interest rates further and over a longer period than the market anticipates during this cutting cycle.

Our economists anticipate that the BoE will hold rates steady at 4.75% in December, given that inflation and growth are likely to remain firm in the near term. But with slowing inflation now likely in 2025, Goldman Sachs Research predicts quarterly cuts to interest rates throughout next year and into 2026, until the Bank Rate hits 3.25% in the second quarter of 2026.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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CEPR

Economic

The results of the recent US presidential election re-ignited a debate over the macroeconomic effects of tariffs, and the appropriate monetary policy response to a trade war. During the first Trump administration, US tariffs on Chinese exports rose seven-fold between 2018 and 2020, and they remained high under the Biden administration. More to the point, global political trends point to a significant weakening of global consensus regarding free trade and herald a new environment in which central banks may face this new type of shock with increasing frequency.

Much of recent research on the macroeconomic effects of trade policy shocks has been conducted in the context of real trade models, or in empirical exercises without consideration of monetary policy. But the consequences of trade frictions obviously challenge central banks: how should they respond to a backwards step in the progress towards increasing trade integration, with potentially significant effects on inflation, economic activity, external balances, and real exchange rates? In a recent paper (Bergin and Corsetti 2023), we study the optimal monetary policy responses to tariff shocks of various types. In this column, we update the analysis and distill lessons appropriate to the current situation.

In our paper, we study the optimal monetary policy responses to tariff shocks using a standard workhorse open-economy New Keynesian (sticky-price) model augmented with international value chains in production, i.e. imported goods are used in the production of domestic goods and exports. This implies that raising tariff protection of domestic exporters raises the cost of production for domestic firms. Throughout our analysis, we assume a share of imported inputs in production close to estimates based on the US input–output tables for 2011 (but we also verify our main conclusions varying this share). Our main analysis assumes substantial pass through of tariffs to consumer prices, but we also demonstrate robustness of our main results to enriching the model with a distribution sector that limits pass-through. Finally, we posit that monetary authorities do not take advantage of cross-border spillovers to pursue beggar-thy-neighbour policies, i.e. we rule out opportunistic manipulation of the exchange rate.

To sum up our main message: even if there is broad agreement that new Trump tariffs will likely be inflationary for the US, it is far from obvious that the optimal response of monetary policy to these tariffs should focus on fighting these inflationary effects via monetary contraction. Tariff shocks combine elements of both demand and supply disturbances, and monetary policy is bound to face a difficult trade-off between moderating inflation and supporting economic activity; in fact, a reasonable calibration of our model indicates that the optimal monetary response to such a scenario may well involve monetary expansion. Our analysis underscores that, while the optimal monetary response to tariffs depends on several factors, a key role is played by (i) the likelihood that the tariffs are reciprocated in a trade war, (ii) the degree of reliance of domestic production on imported intermediates, and (iii) the special role of the US dollar as the dominant currency for invoicing international trade. We discuss different cases in turn.

The case for monetary tightening: Unilateral tariffs without retaliation

Let us consider first the rationale for monetary tightening. This would be clear in a scenario in which the US unilaterally imposes a tariff on domestic purchases of foreign goods to boost demand for domestic goods, causing inflation in the price paid by domestic consumers and producers using imported inputs.

In Figure 1, we use our model to trace the effects of a unilateral tariff shock. The dashed lines trace the effect of such a shock over time while holding policy rates constant: GDP and inflation rise in the US, but they move in the opposite direction in the US’ trade partner (the foreign country). At the ongoing exchange rate, the US trade balance turns into a surplus.

Monetary Policy in Response to Tariff Shocks_1

Looking at these baseline results, a policy of monetary contraction at home (US) can be motivated by a need to moderate inflation – corresponding to monetary expansion abroad to moderate deflation. But a further motivation can be found in the fact that the divergence in the home and foreign policy stance works to appreciate the home currency, which can serve to lower the effective price of foreign goods that home consumers see, and thus partly offset the distortionary effect of the tariffs on relative prices.

These considerations underlie the behaviour of macro variables under the optimal policy, traced as a solid line in the figure. The US monetary authorities curb inflation, which in our case serves also to moderate the domestic rise in output. The fall in demand and the dollar appreciation reduce the trade surplus somewhat. Abroad, monetary authorities support activity at the cost of inflation, contributing to correcting in part the international relative price of goods distorted by the tariff.

As we show in our paper, the conclusions so far remain valid also when the degree of exchange rate pass through is low across all borders, i.e. prices are sticky in the currency of the export destination country. A low pass through reduces the effect of currency depreciation on relative prices, and monetary policy cannot rely on currency depreciation to redirect global demand towards own traded goods. Yet, in response to a unilateral tariff, the optimal stance is still contractionary at home and expansionary abroad.

The case for monetary expansions: Trade wars

Where our paper is more innovative is in showing that the optimal policy is generally expansionary in the case of a symmetric tariff war – say, if the foreign country retaliates with equivalent tariffs on imports of US goods. In this case, the US experiences not only higher inflation but also a drop in output, driven by the fall in global demand induced by the hike in trade costs. Trade wars present policymakers with a choice between moderating headline inflation with a monetary contraction, or instead moderating its negative impact on output and employment with a monetary expansion.

The trade-off confronting central banks is illustrated by the dashed lines in Figure 2, drawn for a symmetric war, under the assumptions that the pass through of the exchange rate on border prices is very high. The contractionary effects of the tariff war include a deep drop in gross exports worldwide. Inflation spikes, while output falls.

Monetary Policy in Response to Tariff Shocks_2

A trade-off between inflation and unemployment is obviously not unfamiliar to policymakers. If it were generated by a standard supply shock – say, a fall in productivity – standard macro models would suggest optimal policy would choose monetary contraction to stabilise inflation. However, as stressed in our analysis, tariffs are quite different from a standard productivity shock, in that they combine elements of supply shocks with demand shocks, and the optimal policy consequently tends to be quite different. One way to see this is that while a tariff war raises the average price of all consumption goods, including imports, the contraction in global demand tends to reduce the prices set by domestic firms. In other words, tariffs raise CPI inflation but tend to depress PPI inflation. In a retaliatory trade war, it is optimal to expand and stabilise PPI inflation despite the hike in CPI inflation hitting consumers. This is shown by the solid lines in Figure 2, drawn for one country (the conclusion applies symmetrically of course to all countries engaging in the trade war).

While we have demonstrated above that tariff shocks are quite different from productivity shocks, it is also important not to confuse tariff shocks with cost-push markup shocks. First, a home tariff shock only affects the prices of imported goods, while markup shocks are typically envisioned as affecting domestically produced goods. Second, the revenue generated by a tariff shock accrues to the importing country, while the profits from higher markups go to firms in the exporting country. Third, tariffs are imposed directly on the buyer, thus added on top of the price set by the exporter. Our model highlights the unique nature of tariff shocks relative to these other supply disturbances; even while monetary contraction is the optimal response to adverse productivity or markup shocks in the context of our model, monetary expansion is the optimal response to a tariff shock generating inflation.

Our analysis fully accounts for the fact that production in the US uses a high share of imported intermediate inputs, i.e. higher production costs amplify the supply-side implications of the tariff relative to the demand implications. Indeed, in our quantitative exercises, we find that the optimal response to a trade war becomes contractionary at a particularly high share of imported intermediate inputs in production. But based on input–output estimates of this share (and extensive robustness analysis in which we vary the share), we believe that our benchmark conclusion (prescribing an expansionary monetary stance) can be expected to be more relevant empirically.

The ‘privilege’ of issuing the dominant currency in international trade

The US dollar has a special role as the dominant currency used in international trade of goods. It is well known that if the prices of imports in all countries are sticky in dollar units, the US (the dominant currency country) can rely to a much larger extent on monetary policy as a stabilisation tool. That is, it should be in a better position to redress the distortionary effects of the tariff shock on own output and employment, with relevant implications for the rest of the world.

Consider first a tariff war, depicted in Figure 3 (again, the dashed lines trace the no-policy scenario, the solid lines the optimal policy scenario). On impact, the war is a global contractionary shock. In the dominant currency country, the optimal monetary response is now relatively more expansionary, as the national monetary authorities can redress the lack of global demand without feeding the inflation of imported inputs at the border – imports in dollars move very little with a dollar depreciation. An expansion in the dominant-currency country is good news for the other country: it contains the fall in global demand and reduces imported inflation there (a dollar depreciation means that importers abroad pay a cheaper price in domestic currency at the border). Because of this, even if the tariffs hikes are perfectly symmetric, the other country is in a different position. Rather than matching the expansion in the US, it resorts to a mild upfront contraction to contain inflation. Note that, while GDP falls in both countries, it falls by less in the country issuing the dominant currency. The US dollar depreciates in this scenario.

Monetary Policy in Response to Tariff Shocks_3

As we discussed above, in the case that the tariff is unilaterally imposed by the dominant currency country, the global demand for exports by this country does not suffer the effects of a retaliatory tariff. Hence, inflation becomes a more pressing concern for monetary authorities – the optimal stance is contractionary. The contraction can now be stronger, because the dollar appreciation has more muted crowding-out effects on US goods in the international market. The stronger contraction has global repercussions. Abroad the optimal stance becomes expansionary – to prompt domestic demand vis-à-vis falling exports to the US – tolerating inflation and exacerbating currency depreciation. The US dollar appreciates sharply in this scenario.

Conclusions

Tariff shocks may present policymakers with a particularly difficult choice between moderating inflation and the output gap. Several factors of the current situation suggest that, even while tariffs are likely to be inflationary, it might be optimal for policy to focus more on the inefficient fall in output. These factors include the likelihood that US tariffs could be reciprocated in a tariff war, the fact that current tariff threats seem centred more on final consumption goods rather than intermediate inputs in domestic production, and the fact that the US dollar has an asymmetric position in world trade as a dominant currency.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Brookings Institution

Energy

Stocks

Economic

Higher interest rates in recent years have sparked concerns about their adverse impact on clean energy investments. Such investments are needed to support the transition to a low-carbon economy, which is necessary to avoid further climate change damage to the economy. While higher interest rates typically reduce all types of business investment, there are worries that they may disproportionately hinder efforts to build renewable energy infrastructure and decarbonize the economy more generally.

Are higher interest rates particularly bad for green investment? To answer this issue, we compare whether equity prices of low-carbon “green” companies respond more to monetary policy surprises than those of high-carbon “brown” firms. Monetary surprises are measured using intraday changes in interest rates around monetary policy announcements. We also assume that financial investors price companies’ stocks based on their future investment opportunities and profitability. This methodology allows us to identify a causal linkage between interest rates and green financial prospects.

Our results reveal that monetary policy surprises tend to have a stronger impact on brown firms—those with higher carbon emission intensities—than on green firms. This finding suggests that rising interest rates may not skew investment away from the green transition. Given Europe’s well-defined and widely supported commitment to achieving carbon neutrality, our study uses European firm-level data and European Central Bank (ECB) monetary policy surprises. Using U.S. data, other recent studies have uncovered a similar greater sensitivity of the equity prices of brown firms to Fed monetary policy surprises compared with green firms. However, the deep social and political uncertainties surrounding U.S. climate policy may cloud investor perceptions and pricing of climate-related equity risks.

Our research contributes to a growing understanding of how monetary policy can affect the financial aspects of the green transition. We also explore potential reasons for the differing green/brown equity price responses. For example, an unexpected monetary tightening may increase the climate risk premium for brown firms, heightening their interest rate sensitivity. Additionally, investors with a preference for green securities may be less likely to substitute away from green stocks following monetary policy shocks. By contrast, our findings indicate that differences in other firm characteristics, such as leverage, age, and liquidity, have minimal influence on these dynamics.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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ACY

Forex

Economic

U.S. Economic Developments: Soft Landing Prospects

The U.S. economy continues to chart a path toward a "soft landing," a scenario where inflation cools without triggering a severe recession. Gradual easing in the labour market underscores this trend, with recent jobless claims figures showing minor increases yet remaining well below concerning thresholds. Businesses are largely retaining staff, indicating stable employment conditions.

This resilience supports the U.S. dollar, which has strengthened alongside rising bond yields. The USD Index, climbing to its highest level since October 2023, reflects this robustness. However, traders should monitor labour market data closely. Signs of accelerated wage growth or unexpected unemployment spikes could challenge the Federal Reserve’s policy outlook, impacting USD pairs.

Key Trading Insight: A firm USD amidst geopolitical uncertainty and stable economic conditions makes pairs like EUR/USD and USD/JPY attractive for traders seeking to ride the dollar's strength. Consider opportunities in these pairs while watching for inflation and employment updates that may signal reversals.

Eurozone Inflation Dynamics

Eurozone inflation is on the rebound, driven by energy price increases and moderate gains in core inflation. Headline HICP rose to 2.24% in November, with core inflation edging up to 2.74%. While food inflation has eased slightly, energy inflation has shown renewed strength, fuelled by base effects and higher energy costs.

Despite these increases, inflation remains uneven across components. Services inflation, particularly in labour-intensive sectors, shows signs of plateauing at elevated levels. The European Central Bank (ECB) faces the challenge of balancing rate stability with ensuring inflation remains near target levels. For traders, this dynamic introduces volatility in the Euro, especially against stronger currencies like the USD.

Key Trading Insight: The EUR’s vulnerability to inflation surprises and political uncertainty across the bloc suggests caution for traders. Pairs like EUR/GBP and EUR/USD may present opportunities tied to inflation data releases and ECB communications.

EURUSD H1 Chart

Japan’s Economic Challenges

Japan faces a precarious economic situation, with real GDP growth projected to contract by -0.3% in 2024. This negative growth outlook arises partly from premature rate hikes by the Bank of Japan (BoJ) amid a global slowdown, which has dampened domestic demand. Real consumption remains below pre-pandemic levels, highlighting persistent economic fragility.

Inflation trends also raise concerns. The core consumer price index (CPI), excluding fresh food and energy, is showing only modest growth, far below the BoJ’s 2% target. Market expectations for further BoJ rate hikes in December could boost the Yen temporarily, but sustained weakness in domestic demand may limit its upside.

To counter deflationary risks, the Japanese government has unveiled aggressive fiscal measures, including a JPY21.9 trillion stimulus package, tax adjustments, and economic incentives ahead of next year’s elections. However, these measures may take time to filter through, keeping the Yen in flux.

Key Trading Insight: With the USD/JPY pair influenced by diverging monetary policies and Japan’s domestic challenges, traders should watch for BoJ rate announcements and macroeconomic data. Short-term bullish bets on the Yen could align with expectations of tightening, while long-term positions may favour the dollar's resilience.

USDJPY H1 Chart

How Global Economic Shifts Shape November's Trading Opportunities_2

Energy Markets and Commodity Currencies

Energy markets are experiencing renewed turbulence, driven by geopolitical tensions and shifting supply dynamics. Oil prices have risen on reports of escalating conflict in Eastern Europe, with West Texas Intermediate (WTI) crude climbing above $70 per barrel. Such developments often bolster commodity-linked currencies like the Australian dollar (AUD) and Canadian dollar (CAD).

The Australian dollar, for instance, has gained modestly due to higher energy commodity prices and strong yield support. However, the Reserve Bank of Australia (RBA) has delayed its anticipated rate cut timeline to mid-2025, suggesting a cautious stance that could temper AUD strength.

Conversely, the Canadian dollar faces mixed prospects, with oil prices offering support but domestic economic concerns weighing on long-term growth expectations. Traders should also consider how China’s economic policies—particularly in energy demand and industrial output—may affect commodity currencies broadly.

Key Trading Insight: Pair movements such as AUD/USD and USD/CAD offer opportunities tied to energy price shifts. Stay attuned to geopolitical news and central bank guidance, as these can trigger rapid market re-pricing.

AUDUSD & USDCAD H1 Chart

Key Market Movements and Trading Opportunities

Recent forex market trends highlight areas of volatility and opportunity:

USD Strength: The U.S. dollar continues to benefit from robust economic fundamentals and rising bond yields, making it a preferred choice during geopolitical uncertainty.

US10YJPY Volatility: Expectations of a December BoJ rate hike has strengthened the Yen, but longer-term challenges may cap its gains.

BOJ Hike ExpectationsEUR Pressures: Inflation dynamics and uneven economic growth across the Eurozone add complexity for the Euro, offering tactical trading opportunities.Commodity Currencies: The AUD and CAD remain closely tied to commodity price movements, with geopolitical risks adding further unpredictability.

AUDUSD (Blue), USCAD (Pink) & GOLD Prices (Purple) Daily Chart

Actionable Strategies:

Focus on pairs like USD/JPY for short-term volatility tied to BoJ decisions.Monitor EUR/USD for potential moves driven by inflation and ECB policy updates.Trade AUD/USD and USD/CAD in line with energy market developments and RBA/BoC communications.

The U.S. dollar stands firm amidst steady economic performance, while the Euro and Yen face contrasting pressures from inflation and growth uncertainties. Meanwhile, commodity currencies like the AUD and CAD remain sensitive to energy markets and central bank strategies.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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ING

Economic

Political

Donald Trump’s resounding victory has upset conventional economists almost as much as American liberals. The Republican candidate’s pledge to implement trade tariffs and other protectionist measures has provoked a spate of dire economic prognostications. But much of the current doom-mongery doesn’t consider mitigating factors — and risks undermining the credibility of globalisation’s defenders. These are difficult times for economic experts. Politicians hardly seem to take their advice seriously any more.

These are difficult times for economic experts

Economists continue to warn about the dangers of deglobalisation in the form of higher prices and less GDP growth, but electorates are rolling their eyes. Trump’s victory amplifies this trend. Some economists estimate that “blanket” tariffs on all imported goods will add up to a big hit to the global economy, leaving American and European households worse off. For example, the Peterson Institute for International Economics estimates that tariffs will add more than $2,600 in annual costs to the typical US household. The prestigious Wharton School at the University of Pennsylvania warns a trade war “could reduce GDP by as much as 5 per cent over the next two decades”. Not to be outdone, the IMF estimates US GDP will be 1.6 per cent lower by 2026 as a consequence of Trump-like policies.

However, there are a couple of problems in general with forecasting the impact of tariff rises. First, some forecasts do not always place enough emphasis on likely mitigants or the economic mechanisms that will soften the blow. For example, a stronger dollar would lower the inflationary impact of tariffs in the US, by reducing the effective price of imports of goods and services priced in euros or pounds. Corporates will certainly adapt and find ways to cushion the blow — rerouting the trade via other countries, adding more value in the US rather than at home — and economic simulations usually underestimate these. Also, monetary policy will help out. In Europe, for example, the European Central Bank could lower interest rates.

Second, Trump has also promised economically supportive policies, such as deregulating the energy sector, which could help cut prices, and also lower taxes, which would support net income. In addition, there is a big but well-known question mark over the extent to which tariffs will be implemented. Trump is a dealmaker; ergo, it seems reasonable to assume he will make deals. And, judging from his last administration, American corporates might be able to convince the president-elect of the negative impacts on their businesses given a huge share of imports are intra-company.

Economists’ forecasts sometimes sound worse to the average consumer than they probably are. For example, Wharton’s estimated 5 per cent GDP hit would occur over two decades; that hardly constitutes a crisis. Similarly, the IMF’s 1.6 per cent GDP decrease over two years is substantial but not enough to constitute a meaningful recession in itself.

The damage done by tariffs is likely to be slow and cumulative

Tellingly, the IMF does not expect Trump’s proposals to lead to significant inflation, but that has not been given much attention. And even the direst economic conjecture has not yet forecast price increases similar to those seen recently, particularly in energy and food. In sum, the shock effect of proposed tariffs is pretty slight compared with the economic stress that consumers and corporates have experienced over the past few years. To be sure, economists are not wrong to say protectionism comes with a hefty price. But, much like Brexit, the damage done by tariffs specifically and deglobalisation generally is likely to be slow and cumulative.

There are multiple downsides to presenting it as a shock. First, it reduces fragile confidence and thus, businesses and consumers may refrain from investing or shopping, hitting growth more than necessary. Second, governments may rush to policies and compromises that are overdone, such as concessions in a trade deal or tit-for-tat protectionism. Third, it could slow momentum for much-needed European economic integration, including capital markets and banking unions, as politicians wait for a crisis that will never come before starting their negotiations.

Finally, voters will see overly pessimistic warnings about inflation and other economic damage as yet another reason not to listen to experts. The consequences of deglobalisation will show up in the slow erosion of long-term productivity and economic well-being. It will leave us all poorer in the long run. That’s less catchy but a crucial defence of why it matters. Overly gloomy warnings of a Trump shock risk weakening crucial support for globalisation and open trade even more.

To stay updated on all economic events of today, please check out our Economic calendar

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JPMorgan

Economic

Stocks

The U.S. has enjoyed a strong bull market for the past two years, with U.S. equities rallying around 60%. Economic resiliency, the start of a Fed easing cycle and the emergence of AI have been key contributors to this performance. Strong gains were mostly concentrated in the “Magnificent 7” in 2023 and the first half of 2024, but broader leadership is now emerging and should continue. Looking ahead, we expect extraordinary earnings growth will settle at still-elevated levels for mega-cap tech while reaccelerating in other areas of the market. This broadening, coupled with resilient economic fundamentals, policy tailwinds and secular trends, should support a more inclusive rally in the year ahead.

Earnings outlook remains supported

In 2024, earnings growth was primarily driven by profit margin expansion from the mega-cap tech names. As the inflation, wage growth and supply chain issues that plagued profitability in 2022 continue to abate, margin recovery should broaden with health care and consumer discretionary seeing notable improvement. However, the contribution to earnings from margins should normalize, and disinflation could also add some pressure by constraining pricing power. Buybacks should also remain tame as companies increasingly use excess capital to invest in their businesses rather than return it to shareholders. As such, revenue growth will be an increasingly important driver of future returns.

Altogether, markets are currently expecting S&P 500 earnings growth to accelerate from 0% in 2023 to 9% this year, followed by an impressive 15% in 2025 and 13% in 2026. We expect earnings growth will be robust and more broad-based, but if GDP growth normalizes towards trend, as we expect, then consensus estimates could be overly optimistic unless a broad-based corporate tax cut is delivered. However, any benefit from a corporate tax cut could be at least partially offset by weakness of multinational performance and a stronger dollar from proposed tariffs. If mid single-digit to low double-digit earnings growth were achieved, it would hinge upon continued economic resiliency, revenue growth and the other 493 companies pulling their weight.

Earnings breadth should drive market breadth

Underneath the surface, the composition of earnings is projected to shift as well. Earnings growth for the Mag 7 is expected to decelerate to a (still solid) 20% annual pace, while accelerating for the rest of the market (Exhibit 1). AI will continue to be a focal point, but the conversation is becoming more balanced with return-on-investment concerns weighed against impressive profits and cash flow generation. This is already reverberating in a more inclusive rally. The Mag 7 accounted for 63% of S&P 500 returns in 2023, and that share has stepped down to 47% so far this year.

U.S. Equities: Sturdier Leadership Extends the Bull Market_1

Beneath the surface, certain sectors are just emerging from cyclical headwinds. Industrials, energy and materials earnings have been in the doldrums with weak U.S. manufacturing activity for the past two years. But as the cost of capital declines with interest rates, consumers and companies should resume capital intensive expenditures. Durable goods subsectors, particularly those tied to housing, should also see a boost. Financials should benefit from increased loan and insurance demand, a more favorable yield curve, normalizing M&A and IPO activity and prospects for deregulation, while falling rates also increase the relative value of bond proxy sectors like utilities and real estate. Lastly, consumer sectors can likely inch along with improving household purchasing power, but heightened price sensitivity will keep non-discretionary or value- oriented companies most supported.

The prospect of deregulation and corporate tax cuts may finally give investors conviction to add to previously unloved areas of the market, like value and mid/small cap stocks, which are also benefiting from earnings recovery and attractive valuations. However, volatility may be ahead should more growth-negative policies emerge, such as tariffs. Secular spending on AI, the energy transition and diversifying supply chains are also providing sizable tailwind for the market. The “hyperscalers” are accelerating capex to upwards of $200B this year and 2025 is set to be another year of significant investment. This spending will benefit areas of the market like data center real estate, engineering and construction, nuclear and renewable power, energy transmission, gas-powered electricity, cooling technologies and the electrical components that connect it all (Exhibit 2). U.S. Equities: Sturdier Leadership Extends the Bull Market_2

U.S. Equities: Sturdier Leadership Extends the Bull Market_2

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Risk Warnings and Disclaimers

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Warren Takunda

Cryptocurrency

Bitcoin rebounded 6.25% from its local low of $90,742 to above $96,000 on Nov. 29 as onchain data suggested whales “took advantage” of discounted prices this week. Bitcoin Whales 'Took Advantage' of $90K BTC Price Dip, Scooping Up $1.5B_1

Bitcoin Whales 'Took Advantage' of $90K BTC Price Dip, Scooping Up $1.5B_1

BTC/USD daily chart. Source: Cointelegraph/TradingView

Bitcoin whales snap up $1.5B more on BTC price dip

Data from Cointelegraph Markets Pro and TradingView showed a Bitcoin price recovery taking shape after the recent correction as it held above $95,000.

Market participants have observed deliberate posturing by whales, with analysis suggesting they played an important role in the latest BTC price recovery.

“Bitcoin whales took advantage” of the crypto market correction earlier this week, accumulating 16,000 BTC, wrote CryptoQuant contributing analyst Caueconomy.

In a Nov. 29 post on X, Caueconomy said that much of the $1.5 billion in Bitcoin was scooped up after almost $4 billion in BTC was sent to exchanges at a loss by short-term holders. Bitcoin Whales 'Took Advantage' of $90K BTC Price Dip, Scooping Up $1.5B_2

Bitcoin Whales 'Took Advantage' of $90K BTC Price Dip, Scooping Up $1.5B_2

Bitcoin whale daily change. Source: CryptoQuant

Nevertheless, “this spot buying volume is not yet sufficient enough to demonstrate a more widespread buy-the-dip pattern, remaining heavily concentrated among institutional players,” the analyst noted. Bitcoin Whales 'Took Advantage' of $90K BTC Price Dip, Scooping Up $1.5B_3

Bitcoin Whales 'Took Advantage' of $90K BTC Price Dip, Scooping Up $1.5B_3

Retail trading activity remains “neutral.” Source: CryptoQuant

In other words, other investors, such as day traders and retail, must also join the fray to push the price past $100,000.

“We will need a larger spot buying volume between retail and institutions to achieve a new ATH.”

Whale accumulation to send BTC to $100K?

In October, Cointelegraph reported similar activity when Bitcoin whale holdings reached an all-time high of 670,000 BTC. This preceded Bitcoin’s rise from the $60,000 levels toward current all-time highs just under $100,000.

If history repeats, Bitcoin price should benefit from whale accumulation to push it over the $100,000 psychological barrier.

At $95,672, BTC’s price sits on strong support on the downside compared to the resistance it faces in its recovery path, according to data from IntoTheBlock.

The in/out of the money around price (IOMAP) chart below shows that the immediate support sits within the $92,777 to $95,634 price range, where about 490,570 wallets acquired some 441,250 BTC. Bitcoin Whales 'Took Advantage' of $90K BTC Price Dip, Scooping Up $1.5B_4

Bitcoin Whales 'Took Advantage' of $90K BTC Price Dip, Scooping Up $1.5B_4

Bitcoin IOMAP chart. Source: IntoTheBlock

From a technical perspective, Bitcoin has managed an immediate recovery above $95,000 after exhibiting a V-pattern from the local low at $90,742.

As reported by Cointelegraph, the most logical scenario for BTC is to retest the $100,000 resistance level. But first, a daily candle close above the overhead resistance at $96,400 is needed. Bitcoin Whales 'Took Advantage' of $90K BTC Price Dip, Scooping Up $1.5B_5