Economic and market outlook 2025: what it means for you

US shares have enjoyed a strong year but how likely is this to continue?

And will muted growth in other parts of the world turn around?

As we head into 2025, the global economic landscape presents a mixed picture.

I’m Josefina Rodriguez, and here’s what the outlook means for investors.

In the US, we expect economic growth to slow to about 2% due to intensifying global trade tensions.

Interest rates are expected to fall to 4%, but there’s a delicate balance to maintain to avoid reigniting inflation.

In the euro area, inflation is nearing the European Central Bank’s 2% target but this has come at the expense of little-to-no growth.

We expect interest rates to drop to 1.75% by the end of 2025.

The UK, however, could see growth above its long-term average, thanks to Autumn Budget measures to boost spending and investment.

Interest rates are expected to end the year at 3.75%.

So, what does this mean for markets?

US share price valuations are elevated, which will drag down long-term returns, but history shows US shares can defy concerns about valuations in the short term.

Shares outside the US offer more attractive valuations.

While this could mean higher expected long-term returns, economic growth and profits matter more over shorter horizons.

How these factors develop in the coming years will determine whether and when more attractive valuations translate into higher returns for investors.

Meanwhile, we think bonds, which are a type of loan, will perform well, strengthening their position as a buffer in long-term portfolios.

We said last year that bonds were back, and now we think they’re here to stay.

Now, what does this mean for you?

The strong outlook for bonds together with a more cautious long-term outlook for US shares means that holding a balanced portfolio across different investments, regions and countries is key.

For example, a portfolio of 60% shares and 40% bonds could return 5% to 7% over the next decade, offering a way to navigate market conditions without the need to time the market precisely.

Investing in a globally diversified portfolio - and sticking with it for the long term - is one of the best strategies to follow to be a successful investor.