In its base case scenario, Robeco expects US growth to moderate next year due to cooling consumption and higher tariffs.
In its 2025 economic outlook, “This is not a landing”, the firm forecast real GDP growth at 1.7 per cent, reflecting a mild stagflationary trend.
Moreover, easing credit conditions and strengthening fiscal impulse in Europe will support a modest cyclical rebound, while, in China, the stimulus efforts are anticipated to offset some downside risks, without reversing disinflationary pressures.
But under its bear case scenario, Robeco projects “a turbulent environment where escalating tariffs, geopolitical tensions, and high military spending lead to global stagflationary pressures.”
Moreover, inflation is likely to spike and would disrupt bond markets and corporate investments, with US consumers bearing the brunt of rising tariff costs.
“Here [in this scenario] we really do see a negative supply side shock reverberating across the global economy on the back of quite vicious tit for tat 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 going on in the world and this scenario sees an additional number of conflicts also in the hybrid sphere unfolding in the next 12 months,” he said.
Despite concerns surrounding the potential “erratic nature” of Donald Trump’s presidency, he expects the US economy to deliver a healthy 1.7 per cent GDP growth in 2025.
This growth is likely to translate into high single-digit earnings-per-share (EPS) growth, although slightly below the current 40 per cent levels.
Van der Welle also said that liquidity conditions could ease in the first half of 2025 due to central bank easing.
“But things could become more challenging in the second half if Trump really gets more vocal about the tariffs,” van der Welle said.
Recalling Trump’s first term in office, van der Welle said that initial optimism from the 2017 Tax Cuts and Jobs Act (TCJA) gave way to market headwinds in 2018 as tariff policies became a central focus.
“In December 2017 initially [we saw] the steep bond upward trajectory for EPS revisions but whenever Trump became more vocal about his tariff policies in 2018, you saw a number of earnings downgrades relative to earnings upgrades increase and also risky assets experienced more headwinds after each Trump tariff announcement,” he said.
“We are in a late cycle market in the economy, so that means it could see more multiple compressions but earnings delivery will be again quite healthy so the US corporates can grow to their multiples.”
He also said that the unemployment rate would be a critical indicator for market narratives in 2025.
“Whenever the unemployment is about to increase above 4.5 per cent this will be a game changer for 2025 than we could see a change in market narrative towards the hard landing narrative again,” van der Welle said.
Financial market implications
Robeco said that while US equities are expected to sustain their upward trajectory, with the S&P 500 reflecting extended valuations following a year of strong performance, macro-economic uncertainties could lead to abrupt shifts in sentiment.
He said that elevated valuations, especially the tech sector, increase the probability of sell-offs.
“We did an analysis looking at bubbles historically and current levels really create higher low pressure moments so that means that the probability of sell offs is elevated, especially in the US sector, but also a magnitude of sell offs is more elevated,” van der Welle said.
“You have basically a 30 per cent probability of a sell off – and each selloff conditional upon that it happens could see a 30 per cent market decline in the tech sector.
“That is something to take into account that a bullish narrative in tech, because of the AI adoption, can continue but at the same time you need to have your bullish bets because downside risk is quite elevated.”
