As 2025 approaches, Capital Economics analysts said in a note this week that they expect a modest recovery for most major global economies after a challenging second half of 2024.

According to the firm’s analysis, two key themes will shape advanced economies: inflation normalization and monetary policy easing, “both of which should offer some support to GDP growth,” the firm said.

Additionally, China’s recovery is expected to accelerate as fiscal stimulus kicks in, although ongoing trade tensions with the U.S. and its allies could limit its growth potential.

However, several risks remain on the horizon, according to Capital Economics. The firm highlighted “stickiness of inflation, particularly in Europe,” which could dampen real income growth and reduce the scope for policy easing.

In addition, political transitions in various countries are said to be creating uncertainty, with potential risks around debt-funded stimulus and financial market reactions.

The firm believes that the emergence of isolationist trade policies and stronger resistance to immigration are also flagged as concerns, potentially leading to stagflationary effects in advanced markets.

While some fear a recession is on the horizon for 2025, Capital Economics remains cautiously optimistic.

They note warning signs such as a downturn in the manufacturing survey, rising unemployment and rising loan delinquencies, but stress that these indicators alone do not guarantee a recession.

“Trends in credit, employment, retail sales and construction continue to paint a broadly positive picture,” Capital Economics says.

Overall, they predict that “a soft landing is the most likely outcome” for 2025, although they are closely monitoring emerging risks.