Nagelmackers chief economist: “The United States will remain the economic engine of the developed world in 2025”

Table of Contents

• 1 BusinessAM looks ahead at 2025
• 2 And what about the rest of the world?
• 3 **What are ⁤the potential implications ‍of Trump’s protectionist policies on the⁣ global economy in 2025, and how ‍might these policies disproportionately ​affect developing economies compared to developed ones?**

BusinessAM looks ahead at 2025

2024 is almost coming to an end. That is why at BusinessAM we will be looking forward to the new year with experts from the financial and economic world in the last weeks of 2024. How will the American and European economies perform in 2025? And what can we expect from bitcoin and other crypto coins? These are just a few of the questions we will address in this series. We will publish an interview every Tuesday until the end of the year.

For our first interview, we spoke to Christofer Govaerts, chief economist at Nagelmackers, about the impact of Trump’s presidency on the global economy.

2025 promises to be a very uncertain year. In the euro area, the Germans have to go to the polls again, and in the United States (US) Donald Trump is starting his second term in office. Nevertheless, Christofer Govaerts, chief economist at Nagelmackers, expects the global economy to strengthen further. “The US will be the economic engine of the developed world live in the world.”

Both the euro area and the US have faced major challenges in recent years. Consider, among other things, the sky-high inflation and geopolitical uncertainty in the world. But both economies are currently managing to keep their heads above water. According to the latest data from the International Monetary Fund (IMF), growth for the euro area will reach 0.8 percent this year. Economic activity in the US will increase by 2.8 percent and the global economy will grow by 3.2 percent.

The US could surprise analysts this year. “The yield curve has been inverted (where the short term interest rate is higher than the right long term interest rate.) fear of a short-term American decline, but in the end that situation did not materialize,” Govaerts said. “On the other hand, the American plane is still flying and will remain in the air for some time to come. Growth may slow down in the coming quarters, but that’s certainly not a disaster. So a recession in the US seems unlikely in the short term.”

And what about the rest of the world?

The IMF also expects green growth figures for the world economy in 2025. Currently, growth of 3.2 percent is assumed, which is the same as the (expected) figure for 2024. “Although there is still some uncertainty. We think about it, among other things the impact of Trump’s election victory“, explained Govaerts. For example, the president-elect wants to implement a protectionist policy. “The IMF expects growth in the euro area to rise to 1.2 percent next year, but that is certainly not a guarantee.”

“Europe is facing additional challenges due to some structural problems in the region,” Govaerts continues. Therefore, Germany, normally the economic stronghold of the monetary bloc, is still the sick man in Europe. The IMF expects zero growth for that country this year. Next year, Germany’s growth will be limited to 0.8 percent.

Trump’s policy could also cause problems in Asia, and especially for China. The president-elect is considering a major increase in import taxes on products from that country. “The IMF assumes that China will grow by 4.8 percent in 2024 and 4.5 percent in 2025. But we can cast some doubt on the forecast for 2025 because of the uncertainty that will be associated to the Trump administration, it seems. “The country is now taking stimulus measures to support economic growth. ” Growth in China has been below expectations in recent years due to, among other things, the real estate crisis.

India, meanwhile, seems to be benefiting from the confusion in China. Due to the sharp increase in the population and growing tensions between China and the US, more and more companies are looking to India. And that is reflected in the growth figures. The IMF expects growth there to reach 7 percent in 2024 and 6.5 percent in 2025.

In the West, economies can now count on support from central banks. They started lowering interest rates this year. Both the European Central Bank (ECB) in of the Federal Reserve has already reduced the policy interest rate by 75 basis points this year. They are expected to continue to relax interest rate policy in 2025.

“In both the US and the EU, monetary institutions are convinced that inflation will fall to the desired level next year, which is 2 percent,” said Govaerts. “But here too, Trump remains an uncertain factor.”

It cannot be ruled out that government spending could increase significantly under Trump. According to the so-called Penn Wharton Budget Model, the US budget deficit under the Republican could rise to $5.8 trillion, compared to $1.8 trillion today. These very high government spending could increase inflation again, which will put pressure on the Fed to keep interest rates at high levels for a longer period of time.

Higher American interest rates could also affect European interest rate policy. If interest rates rise in the US and those in the EU go down, the euro will come under more pressure. As a result, European consumers have to, among other things, pay more​​​​ for goods imported from the USA. At Nagelmackers they are currently assuming that the euro will strengthen next year. “In our base case, we expect the euro to be worth $1.15 next year, compared to $1.05 today. Again, this is not a guarantee, as there is a lot of uncertainty in 2025.”