AMP expects the ASX 200 to hit 8,800 by the end of next year, but warned a series of challenges will lead to a volatile 2025, with a 15% correction ‘very likely’ » during the year.
“Global and Australian stocks are expected to return a much more limited 7 per cent over the coming year,” AMP chief economist Shane Oliver said in his latest market update.
“Strained valuations after two strong years, lingering risk of recession, likelihood of a global trade war and lingering geopolitical issues will likely lead to volatility in 2025 with a 15 percent correction along the way very likely.”
Elaborating on the main threats for next year, Oliver said the “list of concerns” is long and perhaps even more threatening than in 2024, given the uncertainty surrounding President-elect Donald Trump’s policies. .
Threats, he explained, include less attractive stock market valuations, uncertainty over the extent of central bank rate cuts and the risk of recession, particularly in the United States but also in Australia, if the RBA leaves rates too high for too long.
Additionally, the chief economist highlighted the risk of a global trade war, as well as ongoing risks to China’s economy, which could be amplified as Trump increases tariffs.
Geopolitical risks also remain high, Oliver said, with escalating tensions in Ukraine, Iran and China, European political uncertainty and upcoming Australian and German elections potentially impacting oil prices and public spending.
“These considerations suggest at least a high risk of increased volatility after the relative calm of 2024,” the economist said.
But there are reasons to be optimistic, he said, especially since inflation will likely continue to fall as labor markets and commodity prices continue to ease, which which will push central banks to continue reducing rates.
Regarding the Reserve Bank of Australia in particular, Oliver said, by May the central bank will begin its cycle reversal, reducing the policy rate to 3.6 percent by the end of the year.
Regarding the expected slowdown in global growth, Oliver assured that it would likely strengthen in the second half thanks to rate cuts.
“Australian growth is expected to reach 1.8 per cent, driven by rising real wages, tax cuts and rate cuts, which should lead to a return to profit growth,” he said. .
Aside from his expectations for the ASX 200, Oliver said bonds were expected to generate modest returns as inflation slows and central banks begin to cut rates, while unlisted commercial real estate is expected to see improvement yields.
Australian house prices, on the other hand, could weaken further over the next six months before rebounding with lower interest rates likely to increase by 3% by 2025.
Cash and bank deposits can offer returns above 4 percent, although these are likely to slow as the interest rate falls, Oliver said. At the same time, he predicted that the Australian dollar would fluctuate between US$0.60 and US$0.70, influenced by interest rate differentials and trade tensions.
