2025 outlook: Will tailwinds trump tariffs?
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The global economy is coming off of another year of relatively strong growth in 2024, led by the US. But new and important variables are now in the mix with the election of Donald Trump and the Republican sweep of Congress. So can the solid performance continue amid the policy shifts ahead? And what might be the implications for markets? I'm Alison Nathan, and this is Goldman Sachs Exchanges. In this episode, I'm sitting down with Jan Hatzius, head of Goldman Sachs Research and the firm's chief economist, and Dominic Wilson, senior advisor in the global markets research group, to discuss the e
Glad to be with you.
So first of all, it's hard to believe a full year has gone by since we'd all sat down together to discuss the outlook for 2024, but here we are. And, yeah, let me start by saying that when we sat down a year ago, you were forecasting resilient growth globally and especially in the US, as well as continued disinflation in the major economies that would pave the way for major central banks to start cutting rates, and all of that is generally played out. But meaningful US economic policy shifts are likely ahead with the election of Donald Trump and a Republican sweep. So in your base case, is the
Yes. We think so. We expect another year of above trend and above consensus growth and US outperformance relative to other advanced economies. We're looking for 2 a half percent in 2025, down a little bit from what we now think is 2.8% for 2,024, and most of that is driven by strength that was already underway going into the election. So I would highlight the strength in real disposable personal income growth, which is really driven by the fact that price inflation has fallen a lot more quickly than wage inflation, and so real hourly wages are now growing at a good, say, 1.5% pace. Number 2, f
And if you use those assumptions and apply it to your inflation outlook, because it seems like there seems to be a lot of concern about inflation given prospective policy. How do you factor that in, and do you think this inflation will continue?
So the underlying trend, again, going into the election, I think, is that we were on a good path with inflation gradually coming down, and we're now at 2.7%. If you take the core PCE index, you're actually just over 2% if you take the headline PCE index. And the drivers of lower inflation, in particular, the rebalancing in the labor market and the slowdown in wage growth, I think are underway. There are also some lagging components of the inflation indices, for example, in rent and owner's equivalent rent, so the housing components that should continue to help. So ex any tariff effects, I woul
wanna talk a little bit more about that risk case. But first, Tom, let me talk to you and talk about this relatively benign outlook that Jan depicted as our base case. And, look, it's friendly backdrop for risk assets, but markets have already run very strongly. Valuation arguably is quite stretched. So is this good news already priced in? Yeah.
Look, I I think that's exactly the right place to focus. You said on an kind of outright basis, the backdrop that Jan, you know, just presented is a pretty friendly one. You've got robust US growth. You've got basically falling US inflation over that period. You've got rate cuts continuing without recession. You've got kinda corporate friendly policies coming most likely. And there's also pretty strong flavor of US outperformance within that. But even outside the US, I would say our kinda baseline forecast is sort of stablish growth, more rate cuts falling inflation. I think the bi
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