In its base case scenario, Robeco expects U.S. growth to slow next year due to slowing consumption and rising tariffs.
In its economic outlook for 2025, “It’s not a landing”The company forecasts real GDP growth of 1.7 percent, reflecting a slight stagflationary trend.
Furthermore, easing credit conditions and strengthening fiscal stimulus in Europe will support a modest cyclical rebound, while in China, recovery efforts are expected to offset some downside risks, without reversing disinflationary pressures.
But in its bearish scenario, Robeco foresees “a turbulent environment in which escalating tariffs, geopolitical tensions and high military spending lead to global stagflationary pressures.”
Additionally, inflation is likely to soar and would disrupt bond markets and business investment as U.S. consumers bear the brunt of rising tariffs.
“Here [in this scenario] we really see a negative supply-side shock rippling through the global economy as a result of a pretty vicious trade war,” said Peter van der Welle, multi-asset strategist at Robeco, during a webinar .
He also warned of an increasingly fractured global economic landscape.
“Currently, there are 59 state-led conflicts in the world and this scenario sees an additional number of conflicts also in the hybrid sphere unfold over the next 12 months,” he said.
Despite concerns about the potential “erratic nature” of Donald Trump’s presidency, he expects the US economy to post healthy GDP growth of 1.7% in 2025.
This growth is expected to translate into high single-digit earnings per share (EPS) growth, although slightly below current levels of 40 percent.
Van der Welle also said liquidity conditions could ease in the first half of 2025 thanks to central bank easing.
“But things could get more difficult in the second half of the year if Trump actually becomes more vocal on tariffs,” van der Welle said.
Recalling Trump’s first term in office, van der Welle said the president’s initial optimism Tax Cuts and Jobs Act of 2017 (TCJA) gave way to market headwinds in 2018 as pricing policies became a priority.
“In December 2017, initially [we saw] “Bonds’ strong upward trajectory for EPS revisions, but every time Trump became more vocal about his pricing policies in 2018, you saw a number of downward earnings revisions relative to earnings increases and risky assets also saw more headwinds after each Trump tariff announcement,” he said.
“We are in a late-cycle market in the economy, which means we may see more multiple compressions, but earnings will be quite healthy again, so U.S. companies will be able to hit their multiples.”
He also said the unemployment rate would be a key indicator for market talk in 2025.
“Any time unemployment is poised to rise above 4.5 percent, that will be a game changer for 2025 as we could see a shift in the market narrative towards a hard landing scenario,” van der Welle said.
Implications for financial markets
Robeco said that while U.S. stocks are expected to maintain their upward trajectory, with the S&P 500 reflecting extended valuations after a year of strong performance, macroeconomic uncertainties could lead to sharp shifts in sentiment.
He said high valuations, particularly in the technology sector, increase the likelihood of selloffs.
“We did an analysis looking at historical bubbles and the current levels actually create higher moments of depression, meaning the likelihood of sell-offs is high, particularly in the US sector, but also that the magnitude of the massive sales is higher,” van der said. Welle said.
“Essentially, you have a 30% probability that a selloff will occur – and each selloff conditional on it occurring could cause the market to decline by 30% in the technology sector.
“You have to take into account that a bullish narrative in technology, due to AI adoption, may continue, but at the same time you have to make bullish bets because the risk of decline is quite high.”
