CEO House View | Global Economic Diagnosis for 2025 | Blog

Dear all,

Happy New Year! In the very first CEO House View article for 2025, we would like to share our outlook for the year, highlighting key market opportunities and trends to watch to help you stay ahead.

A quick recap first. 2024 unfolded amid the three major trends we emphasized: a global rate-cutting cycle, a soft landing, and the manufacturing cycle in upswing from early to mid-year. These dynamics fueled an impressive rally in global equities in the first half of the year, with major indices in the U.S., Japan, Germany, and Taiwan hitting all-time highs and even maintaining gains of over 15% by year-end. In fixed income, investment-grade and high-yield bonds delivered steady performance, while U.S. Treasuries saw relatively volatile performance, closing the year flat. Among commodities, gold stood out as the strongest performer, closing up with an impressive 27% gain, while energy and agricultural products delivered weaker performance.

As we move into 2025, here are the three key trends that we think will shape the year and the three critical indicators to monitor:

Trend 1: Manufacturing Cycle Enters Downswing, But to Maintain Resilience Through 1H2025

The global manufacturing sector, which entered an upswing in early 2023, had been winding down through the second half of 2024. As we first highlighted in our November house view, the manufacturing cycle is poised to enter a downturn in 2025, but three factors will contribute to the sector's resilience in the next six months: continued and significant sectoral and regional divergence, companies keeping lean inventories through strict inventory management, and low oil prices providing favorable conditions for central banks to continue rate cuts. As a result, over the next six months, the manufacturing sector is unlikely to enter a sharp decline, but instead, it is expected to undergo a period of volatility and consolidation**. For instance, Taiwan’s export growth is likely to maintain in high single digits, providing a source of support for global equities during this downswing cycle.

Trend 2: Continued Rate Cuts But at a Slower Pace, with Data-Driven Adjustments

Turning to the liquidity front, the monetary policy landscape in 2025 is expected to transition from the consecutive rate cuts seen in 2024 to a more cautious “wait-and-see” approach at a slower pace. At the end of 2024, the Fed lowered interest rates by another 25 basis points, coupled with a downward revision to its rate cut projections for the coming year, from 4 to just 2 rate cuts. Should this raise concerns about the global economic outlook? I believe there’s no need to overinterpret. Both the FOMC statement and subsequent press conference made it clear that the slower rate-cut path is guided by improved economic growth expectations and lower unemployment outlook, which should slightly stretch out the timeline of bringing inflation down to the 2% goal. Adjusting interest rate projections upward in response to a stronger economy is not a bad thing and will provide the Fed with greater flexibility to respond to potential developments under the upcoming Trump administration. Similar trends are expected with other major economies, including central banks like the Bank of England and Bank of Canada. We can expect liquidity dynamics to see more volatility in 2025, but the overall trend of easing monetary conditions remains intact.