Introduction to 2025 Economic Review
As we approach the end of 2025, it’s essential to reflect on the key economic themes of the year and assess how our initial forecasts panned out. This review will compare our December 2024 predictions with the current estimates of growth and inflation, highlighting what we got right, what we got wrong, and the lessons we can learn from our misses.
US Economic Performance
Our main theme for 2025 was that US growth exceptionalism would persist, and this proved correct. The combination of an AI-driven investment boom and strong spending by high-income consumers kept growth at 2%, outperforming consensus expectations, although slightly below our own forecast. Despite volatile policy, our December 2024 forecasts for global GDP growth and inflation were relatively accurate, with growth remaining flat at subdued levels and inflation easing gradually.
Global Trade and Industrial Production
World trade and industrial production have held up remarkably well despite the shock of intensified protectionism. World goods trade grew by an estimated 4%, exactly in line with our forecast, while global industrial production increased by 2.6%, slightly below our prediction of 2.9%. The factors we identified last year, including the AI-driven investment boom and strong consumer spending, have contributed to this resilience.
China and Germany: Diverging Economic Paths
Among major economies, China emerged as the surprise outperformer of 2025, while Germany stood out as the key underperformer. China’s economy grew by 4.8%, beating our expectations of 4.5%, driven by resilient exports and a deepening of trade ties with emerging markets. In contrast, Germany’s industrial malaise has been more pronounced than expected, with growth estimated at 0.2%, below our forecast of 0.5%.
Inflation: A Sticky Issue
Inflation has proven stickier than expected, particularly in advanced economies. Tight labor markets and supply disruptions have kept upward pressure on prices, forcing major central banks to maintain a hawkish stance for longer. The Federal Reserve, in particular, held rates 25-50 basis points higher than our forecast, delaying cuts until late in the year.
FX and Markets in 2025
The US dollar has been a challenging currency to forecast in 2025. We expected a gradual depreciation, which finally occurred in Q2 in response to concerns over US policy institutions and volatile policy. Our strategists advised avoiding a directional dollar view and instead suggested going long cyclical currencies, such as the euro, against a basket of commodities FX, which performed well, particularly in H1.
Lessons for 2026
The biggest takeaway from 2025 is that volatile trade policy is reshaping global macro dynamics. Tariff shocks, fiscal shifts, and supply chain realignments are driving divergences between regions. Our trade scenarios provided a good foundation for pivoting our forecast throughout the year. Looking ahead, economic policy volatility will remain a defining theme, with tariffs and anti-competitive measures potentially rising further, especially if Europe’s tolerance of China’s export-led growth wanes.
Conclusion
In conclusion, our 2025 economic review highlights the importance of adapting to changing global macro dynamics. The transformation of trade and fiscal policy is far from over, and our 2026 forecasts will reflect the shift to more malleable economic policy and this new era of policy-driven volatility and adaptive resilience. By incorporating new insights into our Global Economic Model, we stand ready to respond to further changes in trade policy and provide accurate forecasts for the year ahead. To stay ahead of the curve, register your interest in our upcoming Key Themes 2026 series, which will be published in the coming weeks.
