Scott Kingsley, Senior Wealth Advisor
As we leave behind the turbulence of 2024, the first quarter of 2025 presents a fresh opportunity to reassess and refine your financial strategies for what’s shaping up to be a year of economic uncertainty.
By understanding key economic trends, political developments, and global shifts, you’ll have the insight needed to safeguard and build your wealth in 2025. With this kind of information, you can better navigate the challenges ahead and position your finances for growth.
Global growth is expected to pick up in 2025, and the International Monetary Fund (IMF) projects a global GDP growth of 3.3%, an improvement over the 2.9% growth in 2024, but below the historical average of 3.7% from 2000 to 2019.
But what does this look like for different countries?
The US economy is expected to grow by 2.5%. However, its resilience will be influenced by unpredictable political dynamics and fiscal policies.
Europe faces more of a challenge, with growth expected to stagnate at 1.5%, with some experts predicting it to be closer to 1.1%. Economic recovery will likely slow due to geopolitical risks and internal regulatory complexities.
In the UK, GDP growth is forecast to be around 1.6%, a notable improvement from 2023, though Brexit-related disruptions and structural issues will continue to pose challenges.
Interest rates started to decline towards the end of 2024, a trend likely to continue into 2025. In the UK, interest rates could fall to around 3.75% by the end of the year, providing relief for borrowers and opportunities for better financial positioning.
On a global scale, the IMF predicts global inflation will moderate to 4.2% by the end of 2025, a sharp drop from the 8.7% seen in 2022. However, inflation in major economies like the US and UK may remain above 2%, demonstrating the impact of cost-of-living pressures.
It’s important to monitor how rate cuts could impact inflation and how they may affect your assets and financial strategies. Q1 will be a time to prepare for the shifts that may unfold throughout the year.
Politics will play a significant role in shaping the economic landscape. For instance, political changes in the US could create volatility, as protectionist policies and trade disruptions are expected under Donald Trump's leadership.
These shifts could have a major impact on global markets but may also present investment opportunities in sectors like traditional energy, defence, and manufacturing.
Closer to home, the UK is still adjusting to the aftermath of Labour's 2024 budget, which included hikes in capital gains and inheritance taxes. There are also discussions about potential income tax increases for higher earners.
It’s important to keep an eye on these changes as they could significantly affect your investment strategies and tax planning.
Ongoing geopolitical tensions between major economic powers, especially in regions like Eastern Europe and Asia, could increase volatility, disrupt supply chains, and shift global trade patterns.
For example, the conflict between Russia and Ukraine remains unresolved, and the potential for further escalation could increase energy prices, particularly in Europe. Similarly, tensions in the South China Sea or Taiwan Strait could disrupt crucial trade routes in global manufacturing.
These risks could weigh heavily on global markets, especially in sectors that rely on stable supply chains like technology, automotive, and consumer goods.
On the other hand, the increasing diversification of supply chains and the move away from overreliance on specific regions like China brings with it opportunities in emerging markets in Southeast Asia, India, and Africa.
Companies in these regions, especially in industries like manufacturing and technology, may benefit from the shifting global supply chain dynamics, presenting new investment opportunities for individuals.
Strategically, focussing on resilient sectors such as cybersecurity, energy security, and defence could also be worthwhile as they stand to benefit from ongoing geopolitical tensions the most.
Additionally, you may look to more geographically diversified or less trade-dependent markets to reduce exposure to many of the risks associated with geopolitical events.
The global transition to renewable energy remains one of the most significant long-term trends, with governments pushing for net-zero targets and businesses increasingly investing in green technologies.
While this shift creates new investment opportunities, it also carries risks, particularly for countries reliant on fossil fuels.
In Q1 of 2025, try and focus elements of your portfolio on clean tech, renewable energy companies, and green bonds. This could not only align with emerging regulatory trends but also reduce long-term risks associated with climate change.
These investments are positioned for growth, aligning both with global sustainability efforts and shifting consumer demand for ESG (Environmental, Social, and Governance) options.
AI is expected to disrupt multiple industries in 2025, offering substantial growth potential in sectors like technology, finance, and healthcare. Companies like Nvidia and Amazon Web Services (AWS) are likely to benefit from the growing integration of AI and cloud computing and could present good investment opportunities.
However, with growth comes regulation, and Governments are beginning to consider how to regulate AI, which could impact profitability and market dynamics.
Investors should therefore focus on balancing investments between established players and emerging AI companies while staying alert to regulatory changes.
With economic uncertainty expected throughout 2025, Q1 provides an excellent opportunity to revisit and adjust your investment strategies. A diversified portfolio remains essential, and here are some asset classes to consider:
The tech sector, particularly AI, cloud computing, and cybersecurity, offers strong growth potential. Renewable energy stocks are also a promising long-term investment, and these kinds of equities are likely to have a strong performing year in 2025.
As interest rates fall, fixed-income securities like government and corporate bonds become more attractive. However, investors should be mindful of rising inflation in some markets, which may reduce returns.
Real estate, commodities, and private equity offer diversification opportunities and can provide stability in volatile markets.
Sustainability remains a key theme in 2025, so investment in companies with strong ESG practices can offer long-term growth.
Getting ESG investments lined up as early into the first quarter of the year is advised, as long as their growth potential is high and unlikely to falter amid growing tensions and talk of regulation.
Entering Q1 2025, the global economy offers growth potential but also presents several risks. By diversifying across sectors, staying informed about government policies, and focusing on sustainable investments, you can better navigate the uncertainties ahead.
With careful planning and strategic adjustments, you can position your finances for success throughout 2025.
Feel free to get in touch to discuss what 2025 holds if you’re looking to make the year ahead a successful one financially.