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As is usual at the start of every year, I like to unpack the key themes that we expect will dominate over the next 12 months and will impact both global and local economies and markets. For 2025, there are eight themes that the Peregrine Wealth Investment Team believe are going to define the year. They can be summed up by two words – Trump and MAGA (Make America Great Again).
THEME 1: TRUMP 2.0 MAKING AMERICA GREAT AGAIN
As Donald Trump steps back into the Oval Office for a second term, we will see his policies not only impact the United States (US) but also have a ripple effect on world economics, financial markets and monetary policies, as well as on global geopolitics.
This first theme is the overarching refrain that will define the global economy in 2025 and, as such, impact the next seven themes that I will address below.
THEME 2: SYNCHRONISED MONETARY POLICY, DIVERGENT GROWTH AND TIGHTER FINANCIAL CONDITIONS
At the start of 2024, major global central banks started the year with largely divergent monetary policies, dependent on their different inflation trends. A year on, this is no longer the case. Near the end of 2024, most major central banks had started to cut rates. The big debate, however, is around how long this will last and how many cuts are still in the pipeline – or even when we are likely to see the next hike! Trump’s inflationary policies, coupled with persistent inflation in certain economies, suggest that we may not see as many interest rate cuts as initially anticipated. Additionally, the recent rise in long-term bond yields—driven by expectations of increased fiscal spending and higher US government borrowing—along with a stronger dollar, indicate that 2025 could signal tighter financial conditions. Such conditions typically pose a challenge for both global economies and markets.
Included in this theme is the trend of diverging economic growth, which is termed Geoeconomic Fragmentation. Geoeconomic Fragmentation is a policy-driven reversal of global financial integration that is dependent on a country’s strategic considerations, monetary policy needs, geopolitics, and other economic considerations. In 2025, we expect to see divergence across different economic blocs and regions. To understand the drivers of this divergence, we need to examine which factors are impacting individual economies.
If we look at the US, the European Union (EU) and China, we see that these major economies have started the year on different growth trajectories, as they all face different economic challenges. This will directly impact their potential growth over the next few years.
United States
In the US, over the last few years, the term American Exceptionalism came to the fore. This term refers to how the US economy has outperformed its peers and experienced relatively strong growth. In previous editions of Peregrination, I extensively unpacked the reasons for this. These included US support for consumers during the pandemic, which gave consumer spending a tailwind as the economy emerged from the worst of COVID-19 and then helped them navigate the country’s cycle of high interest rates. As COVID support has ended and consumer savings have dried up, we are starting to see the US consumer becoming more concerned about the future. Despite the beginnings of interest rate cuts, the US still has historically high interest rates, which are putting pressure on highly indebted consumers. As such, we expect that while the US will dodge a recession, it will experience an orderly slowdown throughout 2025, where the economy will dip from the 3% growth it experienced in 2024 to around 2% over the next two to three years.
However, the situation in the US will depend on what policies Trump will be able to implement and what the impact of said policies will have both on the US economy and the rest of the world. In the November 2024 election, the Republicans achieved a ‘red sweep’. This means that the party controls the White House and has majorities in both chambers of Congress, giving Trump far more power to execute his policies than he had in his first term.
Three of Trump’s policies that we believe will have the most impact in the US, and across the world, are trade, immigration and increased fiscal spending.
Trade
With Trump reportedly looking to implement tariffs of between 10% and 200%, his trade policies are currently making headlines. While this exaggerated and divergent range is typical of his style, the world can certainly expect higher tariffs in their trade with the US. China is expected to be the hardest hit, but Trump is also talking about tariffs on some emerging markets. Here, Mexico is a particular focus as it is used as a back door to get Chinese goods into the US. Trump is also talking about implementing tariffs on goods from other economies, and while not a major concern, it could negatively impact regions like the EU, which, since 2020, has continuously struggled to get out of the doldrums.
In terms of economic growth, inflation and interest rates, these trade policies will present headwinds for the US and, consequently, global economic growth. Increased tariffs will also contribute to sticky inflation and have a knock-on effect on the rate-cutting cycle, which may not be as deep as predicted.
Immigration
Trump is talking tough on immigration, and he has committed to returning illegal immigrants to their countries. By extraditing this group of people, rather than legalising them, Trump is removing a major supply of labour, and cheap labour at that. This move will negatively impact industries like agriculture, and it will provide further headwinds for US economic growth. Higher labour costs will have an inflationary effect on US goods, adding to already sticky inflation and capping any further rate cuts.
Fiscal
Trump’s fiscal policies, however, may have a more positive impact on the US economy, with his infrastructure investment plans set to put a lot of money back into the US economy. The move will also, however, be inflationary as increased demand in the construction sector will drive prices up.
What’s more, it must also be remembered that the US is already running a huge fiscal deficit. Going back to 2016, the US economy was managing a $1 trillion deficit, which jumped to $3.5 trillion during the COVID pandemic as the US government sought to support consumers and the economy. While that number has now been brought down, it still stands at $1.5 trillion. If Trump goes ahead with his spending plans, the concern is around where the funding for this will come from. This is where Elon Musk comes in. With his business background, Musk is talking about unlocking $2 trillion in revenue from greater government efficiencies. If Musk is successful, this could pave the way for Trump to implement his plans and cut corporate taxes further, another key part of his agenda.
Considering all of these moving parts, we believe that if Trump goes ahead with these policies over the course of his term, they will ultimately create headwinds to US economic growth. His MAGA policies will be inflationary, which will impact the rate-cutting cycle and ultimately have a negative impact on the US consumer.
Europe
The next region in our discussion around divergent economic growth is Europe. Unlike the US, Europe has been under tremendous pressure over the last few years. The region has faced increased energy costs due to the Russia-Ukraine conflict, and it is battling to remain competitive in the global market. For example, the Chinese have started flooding the European market with cheap electric vehicles, forcing the EU to load tariffs onto this import category.
The ongoing uncertainty has resulted in there being a drag on investment into the region. A slowing global economy has had an impact on their exports, which is concerning as Europe is traditionally a net exporter of goods. As such, Germany, the EU’s growth engine, is in an economic mess. Vehicle manufacturing giant Volkswagen is closing down factories as it can no longer compete with Chinese brands, and the US, the EU’s largest export market for vehicles, is threatening tariffs. Adding to this, the country is facing a number of other challenges. One is that Germany’s governing coalition has fallen apart, so the country is heading into new elections. All of these challenges indicate that Germany may be in for a tough 2025.
Trump’s MAGA policies are potentially going to have huge implications for the EU, and the region will likely struggle to emerge from its current growth slump. We expect the EU’s growth to remain at a mediocre 1% over the next three years, a figure it can only maintain by navigating all the challenges it currently faces.
China
The Chinese economy was underperforming long before Trump’s re-election and this has impacted the emerging markets that rely on China’s growth. To address this issue, the Chinese government took some incremental steps to support the economy in 2024. Yet, the support served to avoid a collapse rather than to be a growth impulse for the Chinese economy and its fellow emerging markets. We expect that over the next three years, China’s growth will likely slow from its current levels of 4.5% to hover around 4% as China faces multiple headwinds, the biggest of which will be US tariffs on Chinese products. US tariffs may force the Chinese government to become more serious about the stimulus it provides, and the bazooka that we spoke about in 2024, which didn’t materialise, may be brought out in 2025 as China tries to get its economy back onto a stronger growth path.
Global economy
All of the above-mentioned factors will result in the global economy slowing in 2025, and we expect the growth rate to fall by about 1% when compared to the levels of the last decade. While it will not be as serious as a recession or collapse, it will definitely slow down, with Trump’s policies, we believe, being the primary driver.
THEME 3: TRADE WARS, A GLOBAL GROWTH RISK
Trade wars pose a definite downside risk to global growth. Trump’s tariffs may result in retaliation, which could further escalate the risk. While we expect this year will see a number of trade wars escalating, we may also see some surprises on the sidelines.
With talk of a meeting between Trump and Chinese President Xi Jinping already being broadcast, we could, for example, see a deal being struck between the US and China, where – as happened between the US and Japan in the 1980s – the US is not as tough on tariffs, but in exchange, China has to invest into the US. This could be in the form of setting up factories, for example. A deal like this could change the dynamics impacting global trade. We will be keeping a close eye on any developments.
THEME 4: GEOPOLITICS – A CHANGE IN FOCUS
Last year was an extremely busy year in terms of global geopolitics. A key theme for 2024 was the inordinately large number of elections, many of which resulted in coalitions. Some of these coalitions have already fallen apart, necessitating fresh elections in 2025.
The geopolitical situation for 2025, however, is changing, and we expect this year to have a greater focus on collaboration. This was already apparent with the 2025 Davos World Economic Forum (WEF) theme being Collaboration in the Intelligent Age. This followed the hype around artificial intelligence (AI) in 2024. Over the last two years, AI has not only contributed to increased productivity in a number of industries, but AI companies have significantly outperformed their peers on global stock markets. This year, in January, the WEF focused on how societies can use technological advances to enhance human potential by developing rather than dividing societies. This idea feeds into the theme of divergent economic growth. Diverging technological growth trends lead to greater wealth divergence and inequality, which is why the WEF is focusing on AI. It wants to ensure that the global community develops together to avoid greater inequalities between countries. Unfortunately, Trump’s MAGA policies will change the US from being a global contributor to a global disrupter.
Another geopolitical event that we will be keenly watching in 2025 is South Africa’s hosting of the G20 Summit this year. This is a key theme given South Africa’s position on the world’s political stage and its relationships with both the East and the West. The G20 will see world leaders from the globe’s 20 largest economies come to Africa. The event will give South Africa the opportunity to showcase its potential and also to act as a catalyst to potentially heal some of the divisive geopolitical relationships between the West and organisations like BRICS – all of which are members of the G20.
THEME 5: THE MAJOR GLOBAL CONFLICTS – WAR OR PEACE?
As the powers of influence shift in 2025, we will keep a close eye on the world’s major conflict zones. Will conditions improve or deteriorate?
When it comes to the Russia-Ukraine conflict, a war that is having a direct impact on EU countries, Trump has said that he will end the conflict between Russia and Ukraine in 24 hours. The question is, when will that 24-hour time period begin?
Trump has also made it clear that he does not want to fight other countries’ wars. He is a transactional politician, so for every dollar that the US spends, Trump wants a return for the US. He is also stressing that North Atlantic Treaty Organisation (NATO) members need to start upping their contributions in terms of support for any NATO agendas, this war included.
The conflict in the Middle East, which has been ongoing since early October 2023, might be resolved given the recent ceasefire agreement. However, with the deep-seated hostilities between the parties involved, only time will tell if the conflict resurfaces over the course of 2025.
THEME 6: ENERGY AND OIL – WORLD GOES ALTERNATIVE, WHILE TRUMP PREFERS FOSSIL FUELS
Climate change is at the top of the agenda for many economies, and over the last few years, we have seen a rush for alternative and clean energy sources. However, with Trump back in office, the White House will be looking at things very differently. Trump is not a proponent of climate change, and he is not on the same page as much of the rest of the world when it comes to trends like electric vehicles. He still believes that the US is self-sufficient in terms of oil supply, so his policies are on the side of energy corporations, where he aims to simplify energy infrastructure and secure drilling approval for gas on federal land. All of his speeches indicate that he is pro-oil and the traditional combustion engine, which may be a headwind for electric vehicle manufacturing in the US, which is interesting given his association with Elon Musk.
Trump’s policies will, however, ensure an increased supply of oil globally. In a weak global economy, however, demand may not match supply, which will have a deflationary effect on goods as the price of oil and energy costs will fall.
THEME 7: SOUTH AFRICA FINDS ITSELF BETWEEN A ROCK AND A HARD PLACE
South Africa will find itself in the middle of two economic factions in 2025. It has a strong association with BRICS but is hosting the G20 Summit, which includes many large Western economies like the US and EU countries. South Africa’s association with BRICS is an issue for the US, and the US has brought up this relationship in its discussions around South Africa’s participation in the US African Growth and Opportunity Act (AGOA) Agreement, which provides goods from participating countries with duty-free access to the US on over 5,000 products.
Last year saw South Africa have a better-than-expected outcome from the general elections, through the formation of the Government of National Unity (GNU). The mood in the country has improved because it appears that “in GNU we trust” and there is a belief that it has the potential to make “everything” better. Essentially, the GNU is South Africa’s version of Trump’s MAGA, because the GNU will arguably make South Africa great again. This year will be a pivotal period for the GNU, however, because unless we see economic activity picking up with real economic growth, the GNU may come to an end.
In summary, South Africa is still operating in an extremely challenging environment and must remain cognisant of the powershifts happening globally that will have an impact on the local economy.
THEME 8: SA-US RELATIONS – SA WALKING A TIGHTROPE
This year South Africa’s participation in AGOA is going to be reviewed. A review has been tabled before, especially after news of the Lady R came out – the Russian ship that docked at Simon’s Town Naval Base – and the African National Congress’s support of Palestine.
In addition, it must be remembered that the AGOA agreement was to benefit lower-income countries in sub-Saharan Africa. South Africa is considered a middle-income country and has been included in AGOA purely because it is located in the region. While China and Africa are South Africa’s biggest trading partners, it is important for South Africa to have as many beneficial trading partners as possible. Having a strained relationship with the US could have negative implications for the country’s overall economic growth, which is already under pressure.
Therefore the South African government is being proactive in trying to rebuild and strengthen its relationship with the US. The G20 Summit may play an important role for the country to cement that relationship even further, and it is something that we will be paying close attention to this year.
2025 IN A NUTSHELL
The consensus amongst the Peregrine Wealth Investment team is that there will be a slowdown in global economic growth, but it will not culminate in a recession. This is good news because it means that the risk for a significant bear market is not extremely high. We will continue to experience sticky inflation given some of the themes I have mentioned above. This implies that interest rates will be cut less than expected, and they definitely won’t mirror the levels seen during the pandemic.
Despite this economic background, market valuations have been running very hard over the last few years. We have experienced significant real returns, double digits in most currencies. In 2025, we will most likely see a moderation in real returns. While this does not mean we are entering a bear market, returns will be under pressure. Trump’s promised corporate tax rates, however, may support the markets, potentially leading to a continued strong performance.
Looking at the markets as a whole, we can expect geopolitical volatility and uncertainty surrounding trade tariffs. A cautious and well-diversified strategy will continue to be key during 2025 to make sure that we protect our clients’ wealth in what is likely to be another volatile year in the markets.
Harold Strydom will offer a more in-depth look at the Peregrine Wealth Investment Team’s three-year High Conviction Strategy for 2025.