Belvoir Wealth Management | Quarterly Investment Outlook

Despite numerous challenges, the world economy has displayed remarkable resilience, with global growth still projected to reach 2.8% in 2025, similar to 2024. This stable development has been underpinned by slowing inflation, softening commodity prices, and monetary easing in most countries. However, these positive trends face headwinds from ongoing conflicts, geopolitical tensions and trade restrictions. Overall, the global economy is set to grow below the pre-pandemic average of 3.2% in coming years, reflecting ongoing structural challenges such as subdued investments, increasing debt levels, weak productivity gains and demographic pressures. But, as this is a view across the board, there are nuances when it comes to regional perspectives.

While the United States recorded 2.8% growth in 2024, most advanced economies were lagging. The United Kingdom reported 0.9% growth, France 1.1%, Switzerland 1.3%, and Germany as the tail-ender in Europe -0.2%. Meanwhile, inflation among the OECD countries is expected to continue to ease from an average of 5.4% in 2024 to 3.8% in 2025 and even below 3.0% in 2026, while headline inflation already returned close to central bank targets in many advanced economies. Labor markets have gradually eased, but unemployment remains low by historical standards. Nominal wage gains and slower inflation have supported household incomes. Yet, consumer confidence has decreased due to uncertainties and that is why private consumption as of late is subdued. Markets have experienced sharp volatility since “Liberation Day”, the announcement of aggressive US tariffs by the Trump administration. Still, global trade is expected to grow by roughly 3.5%, provided that the announced tariffs won’t kick-off a worldwide trade war, which in contrast would push the global economy to lower growth and even stagflation.

Europe
The start to 2025 was better than expected with euro area GDP expanding 1.2% y-o-y in Q1, while growth had stalled in Q4/24, pushing the annual average growth rate in 2024 with 0.7% below the 1% figure of 2023. But significant differences could be observed between countries. Spain, the top performer, grew annualized 3.2%. The “runner-up” were Denmark and Norway growing by 2.8% and 2.1% respectively. The key laggard remained Germany with negative growth of -0.2%, followed by Italy and UK. For 2025 the sentiment indicators point to a slight improvement. The manufacturing PMI (Purchasing Manager Index) showed in April 2025 with 49 still a figure below the growth threshold of 50, but the worst appears to be over. Meanwhile, consumer sentiment fell again, as the uncertainty about the broader economic outlook has increased. Recent turmoil might prompt European policymakers to implement pro-growth initiatives, such as reforms fostering innovation and competitiveness or increased defense spending. Inflation in the euro area was slightly up at the end of 2024, due to rising energy and food prices, yet dropped since then and the latest inflation print for April stood at 2.2% on track to reach the ECB’s 2% target anytime soon. Hence,
the ECB cut key interest rates in April by another 25bps, its seventh consecutive cut since summer last year, signaling a continued easing in 2025.

An unfortunate chapter of German politics came to an end last November, after three years of “traffic light coalition” – government with social democrats, the green party and the liberal democrats. Federal elections were originally scheduled for September 28, 2025 but had to be brought forward to February. While all parties of the former traffic light coalition lost substantially in the ballot, the Christian Democratic Union (CDU) and its sister party (CSU) won the elections with 28.6% of the votes, followed by the far-right Alternative for Germany (AfD), bringing Friedrich Merz of the CDU in the position of becoming Germanys next Chancellor and holding coalition talks. As already mentioned, the previous European locomotive of growth, became its taillight with -0.2% growth in 2024, followed by a similar contraction in Q1/2025. Activity was mainly supported by public consumption, despite limited budgetary resources while private households turned to savings due to lower confidence. Yet, the higher savings rate could support future consumer spending once the sentiment among consumers picks up again. Another bright spot comes from a slight rise in corporate optimism. Moreover, the gradually more expansionary monetary policy and the hope of positive momentum from the newly elected government give reason to expect a moderate recovery. Away from the last year of extremely bad events to a positive growth rate in 2025 of around 0.4% and a further acceleration of economic activity towards the end of this year, bringing GDP growth to around 0.8% in 2026. Yet, uncertainties regarding the trade negotiations hang like a sword of Damocles over these expectations. Meanwhile, economic activity in Spain has shown a remarkable upswing in a challenging environment. The economy grew by 3.2% in 2024, exceeding most of the forecasts. The start into 2025 remained positive with GDP expanding 2.8% y-o-y in Q1. Major drivers of growth were the tourism sector and a gradual revival of private consumption, while the labor market contributed positively as the working population continued to grow. Existing and new home sales increased and the construction sector expanded at a healthy pace. Government consumption should continue to be only a low contributor to growth, due to the fact, that Spain has to carry out fiscal consolidation in order to meet EU requirements. But another positive factor comes from the high level of immigration, explicitly promoted by the government, helping to grow the productive working population by 4% since 2019, about twice as fast as in other Western countries. GDP growth in 2025 is predicted slightly lower than 2024, but still on a very solid path of 2.8%.

Switzerland
GDP expanded at a healthy 1.3% in 2024 despite a weaker than expected Q4 where growth slowed to 0.2% on quarter. The chemicals and pharmaceuticals sector drove the above-average growth in manufacturing, while other manufacturing segments remained muted. Exports contributed significantly to GDP growth, supported by a robust increase in drug exports. Moreover, private consumption grew with retail sales registering the ninth consecutive month of growth in March 2025. In contrast, corporate investment saw a decline. Overall, sport-event and seasonal variations adjusted GDP growth in 2024 was 0.9%. In April 2025, inflation slowed to 0.0% yo-y, the weakest in more than four years, giving the Swiss National Bank (SNB) some headache about future monetary policy. Meanwhile, core inflation, which excludes volatile items like energy and food, reached 0.6% y-o-y. In March 2025, under the new Chairman of the Governing Board, Martin Schlegel, the SNB has lowered its key interest rate for the fifth time in a row to 0.25%. Before the end of the year, Switzerland might already be back in a zero or even negative interest rate environment. Propelled by easing inflation and lower interest rates, consumer spending is set to rise and investment is expected to rebound in 2025. However, mounting geopolitical uncertainty and a shift towards protectionism are likely to hold the Swiss franc strong. Yet, Swiss companies have historically demonstrated adaptability during crises, successfully navigating periods of Swiss franc strength and rapidly changing market conditions. Growth is expected to edge up to adjusted 1.4% in 2025, slightly higher than in 2024.

USA
After a strong 2024, the year 2025 started with some uncertainty due to potential shifts in policy following the elections in the US and around the world. In 2024 the economy expanded by 2.8%, just slightly below
the 2.9% GDP print in 2023. Growth was mainly driven by stronger consumer spending, government expenditures, positive business investment and some higher exports. On the downside, high mortgage rates limited investments in housing, while a stronger US Dollar encouraged imports. The outlook for the coming years will heavily depend on the federal economic policy. Meanwhile, the administration announced aggressive tariffs on “Liberation Day”. However, the model took only the goods trade deficit into account. If the services trade surplus would have been included, the overall trade deficit would shrink to below USD 1000bln or roughly 3% of GDP. Nobody knows today, where US tariff policy will ultimately land, but one thing which is starting to become clear is that the administration seems to focus mainly on China. Despite the exemptions for various electronic goods, the effectively applied tariff rate on imports from China stands at over 100% compared to 12.5% at the beginning of this year. The short-term consequences might be higher prices for US consumers. Yet, should tariffs be maintained around these levels longer-term, they will have the effect of dramatically reducing trade between the world’s two largest economies.

This splitting of the world will not necessarily result in less cross-border trade, but will rather affect the direction of trade flows. Hence, global supply chains might just become more scattered, with some elements configured to serve the US market and others configured to serve China. The negative effects of tariffs, increasing inflation, weaker domestic demand and a slower growing workforce could be fully noticeable in the later part of 2025, beginning of 2026. Conversely, tax cuts and stronger private sector confidence on the prospects of pro-business policies and deregulation could support stronger spending and investment. But policy uncertainty and its potential side effects in the mid to long term should not be underestimated. In this environment the FED held its monetary stance unchanged. A decreasing inflation remains a top priority for US consumers. The latest report from the University of Michigan showed a further slide of the consumer confidence index in April to 52.2 points from a reading of 74 in December 2024. The index fell for a fourth consecutive month to the lowest level since July 2022 as consumers perceived risks to multiple aspects of the economy, in large part due to ongoing uncertainty around trade policy and the potential for a resurgence of inflation.

Compliments of Belvoir Wealth Management