5 motivating factors that indicate a positive outlook for the economic landscape in 2025
Fuelled by unwavering consumer spending, the United States saw a remarkable economic recovery post-pandemic in 2024.
The economic progress has consistently surpassed predictions, outshining high-interest rates and exorbitant inflation. Financial markets thrived. Although recruitment slowed, job losses remained at minimal levels.
Looking towards 2025, with the Trump administration about to assume power, there are numerous reasons to remain hopeful about the economy's prospects.
"The US economy, much like in the past, continues to trudge along at a solid pace," noted David Kelly, chief global strategist at JPMorgan Asset Management.
No impending recession
Contrary to the 2022 assumptions of an imminent recession, fortunately, such a recession has yet to materialize.
The Fed's battle against inflation had a slight impact on economic growth, but not nearly as severe as anticipated. Markets displayed resilience, not yielding to pressure.
Despite some deterioration in the job market, unemployment rates remained low.
Compared to 2021 and 2022, economic analysts scrutinizing the underlying strength of the US economy do not discern the tell-tale signs of an impending recession.
"A significant shock is required to plunge the economy into a recession," Kelly stated, "and I do not foresee any internal factor within the economy serving as that shock."
Of course, there are external threats lurking, such as a potentially devastating trade war.
Stable gas prices
Historically, energy prices can precipitate a recession. The unexpected surge in gasoline prices beyond $5 per gallon in the mid-2022 posed a direct threat to the US economy.
Thankfully, oil prices have reduced significantly since then. Concerns over supply disruptions in the Middle East or Russia have thus far evaded realization. In fact, supply has surpassed expectations, with the USA producing more oil than any nation worldwide.
GasBuddy projects an annual gas price average of $3.22 per gallon for 2025, marking the third consecutive year of declining gas prices.
Stable gas prices are likely to bolster consumer confidence and keep inflation statistics lower than otherwise.
Growing paychecks
Many Americans have voiced frustration over the increased costs of groceries, car insurance, and rent, compared to pre-Covid times.
Although the current price level may not revert to 2019 levels, price hikes have noticeably decreased.
Moreover, paychecks have been consistently growing faster than prices.
This equates to real wage increases for Americans, if this trend continues, they should manage to match rising costs and enjoy improved living standards.
"The best we can do for them is to bring inflation down to its target and ensure it stays there. This will enable Americans to experience substantial real wage increases," Fed Chair Jerome Powell commented during a press conference in December. "This is what will improve their sentiment toward the economy, and this is what will help restore their faith in its strength."
The Fed lowering rates
To combat inflation, the Fed raised interest rates to levels not seen since the 1980s at an unprecedented pace. This resulted in higher borrowing costs for mortgages, car loans, credit cards, and small business loans.
However, with inflation now under control, the Fed has been able to lower interest rates in three consecutive meetings.
Despite confusion over the number of future rate cuts in 2025, the prospect of lowered interest rates should positively impact economic growth in the near future.
Business-friendly policies
President-elect Donald Trump is determined to revitalize the US economy.
The effectiveness of Trump's agenda, particularly on inflation, remains a subject of debate among economists. Nevertheless, some are enthusiastic at the prospect of tax reform and Trump's commitment to cutting bureaucracy.
Trump has appointed Elon Musk as co-leader of a new Department of Government Efficiency, an advisory body tasked with trimming excessive spending and overregulation.
"It does not sound appealing, but substantial productivity gains can be derived from this," said Glenn Hubbard, former dean of the Columbia Business School and a former top economic advisor to President George W. Bush.
Hubbard expressed optimism about efforts to simplify complex financial regulations and to expedite the sluggish permitting process hindering development in the US.
Potential threats
There are always potential threats that could jeopardize the economic outlook, such as a potential mid-January port strike.
Donald Trump's trade policy continues to worry many mainstream economists, fearing it could be inflationary and suppress business investment.
"Trade tariffs harm the economy. I am concerned about that," commented Stephanie Roth, chief economist at Wolfe Research.
However, Roth assumes not all proposed tariffs will be implemented, and those implemented will only start affecting the economy in late 2025.
Should Trump implement all his proposed tariffs, economic growth is projected to decrease by half to just 1% in 2025 - without considering the impact of retaliatory tariffs.
"At this rate, recession risks become a real possibility," Roth warned.
The threat of mass deportations persists, as these could negatively impact core industries, inflating wages and prices.
Investors are also monitoring the potential confrontation between Trump and his handpicked Fed chair, Jerome Powell, over Fed independence.
"Any action against Fed independence could have a detrimental impact on investor sentiment and could become self-fulfilling," Wolfe stated.
Another potential threat looming is an intense tempest in the financial sector, which saw considerable flames throughout most of 2024, but concluded the year with a subpar performance.
There's growing anxiety regarding the escalating costs within certain market segments, particularly the tech sector, and the excessive concentration of profits, largely benefiting the so-called Magnificent Seven.
A significant market downturn or a bear market could undermine consumer and business trust, negatively impacting the actual economy.
And let's not forget the unknown factors — cases such as cyber-attacks, pandemics, and natural disasters that prove challenging to anticipate.
As JPMorgan's Kelly stated, "The takeaways from the 21st century are 'Stop fretting over the anticipated,' and instead 'Worry about the unexpected.'"
(Markdown formatting retained as per the input)
The business sector has benefited from the stabilization of the economy, with financial markets continuing to thrive. The Trump administration's business-friendly policies, such as tax reform and reduced bureaucracy, are expected to further boost business growth.
The positive state of the economy and the business sector has also positively impacted the job market, with job losses remaining minimal and unemployment rates remaining low. The Fed's lowering of interest rates should further boost economic growth in the near future.
