Private banking: four economists share their forecasts for 2025

Article published in Le Temps on 5 January 2025

The return of Donald Trump to the White House will lead to a reorganisation of economic and political relations between the world’s major blocs, according to four economists who discuss their 2025 forecasts for “Le Temps”.

With ‘Trump 2.1’ soon in charge, and his penchant for ‘making deals’, 2025 will be both predictable and unpredictable – we could yet benefit from a ‘Goldilocks’ scenario where we see reasonable levels of both growth and inflation. The four investment specialists are – as is often the case at the start of the year – optimistic, despite the risks of a trade war, or even an outright military war. Their optimism is two-fold. They are betting that, firstly, the next US president will not implement all of his electoral promises, and secondly, different systems will coexist successfully at the level of international relations.

In Switzerland, there will be no escaping the strong franc, or “the fitness programme for Swiss companies” – but negative interest rates are unlikely to return. Late-night tweets from Donald Trump, however, could well be back…

Le Temps: What word do you believe will describe the year 2025, and why?

Kim Muller, CIO at Probus Group: ‘Trump 2.1’. The market positioned itself for Trump 2.0 – who is currently setting the media-sphere alight – as if he was going to immediately make his campaign slogans a reality. But in 2025, we will see how his campaign slogans differ from reality.

For example, the market is terrified at the prospect of the 60% tariffs announced for China and 20% for Europe. In reality, there will of course be tariffs, but let’s not forget, we saw how Trump works with Trump 1.0 and 1.1 – promising the worst and then negotiating to reach a compromise. The market seems to have forgotten that this is what he does, so this could create surprises for those investors who positioned themselves as soon as Donald Trump was re-elected. On the same note, his promises to cut USD 2 trillion from government spending and deport all illegal immigrants will not be achieved. The budget deficit will remain very high and the labour market will not be able to do without this workforce.

Nannette Hechler-Fayd'herbe, Head of Investment Strategy, Sustainability and Research, CIO EMEA, at Lombard Odier: The year of deals. Negotiations will be conducted at all levels: foreign policy, economic policy, trade policy. This will present new opportunities – when you have a ‘deal’, there is always a good and bad side to it.

Esty Dwek, Head of Investment Counsellors at HSBC PB: (Un)predictable. There are still many questions about Trump and the policies his administration will implement. But we are also in a state of continuity: growth is relatively strong in the United States, nearly all the main central banks will announce interest rate cuts, and China is likely to provide more support to its economy. Yet a small question mark still hovers: will there be any surprising announcements? And tweets in the middle of the night?

See also: Preparing portfolios for the coming decade

Daniel Varela, CIO at Piguet Galland bank: I initially thought of ‘America First’, but since the subject has already been mentioned, I have a second one: ‘Goldilocks’. By this I mean a fairly favourable situation in which growth and inflation are solid but not exaggerated (‘Goldilocks’ in financial jargon). We are at the beginning of a cycle. Despite the sharp rise in rates, the previous cycle did not end in a recession or a financial crisis. Now we are at the start of something new, involving rate cuts, inflation that will continue to moderate, and growth that is expected to rebound. This configuration is generally favourable for financial markets.

We are at the beginning of something new, involving rate cuts, inflation that will continue to moderate, and growth that is expected to rebound

Who shares, or does not share, this optimism? We are seeing a lot of bad news and causes for concern in the media.

N. H.-F.: There will be regional disparities. Europe will have a much harder time as a region than the United States, where the politics are relatively clear. But, generally speaking, if there is no recession, and if the central banks remain in a phase of lowering rates, and if disinflation continues, we have a framework that allows us to feel optimistic about 2025. That being said, I don’t think 2025 will be as exuberant in terms of performance as 2024 across a range of assets, such as stocks or gold.

E. D.: I fully agree with this optimistic view. We are still seeing overweighting on the stock markets and on the American market in particular, compared to Europe for example, where pockets of weakness remain. We are seeing a willingness from Beijing to extend its stimulus – but will the market continue to be disappointed by the lack of the ‘big bang’ that it wants to see? The answer to that is ‘yes’, but when you look at everything the Chinese government is already doing, 2025 should be better than 2024. This should provide a little support for Europe too, even if in the short term it will probably be some time before China can restart its growth engines.

K. M.: I share this optimism, especially for the first half of the year, while recognising that inflation has been somewhat relegated to the background. The policies expected from the US administration contain few disinflationary elements. Cutting taxes helps to restart the economy, but limiting immigration brings a risk of tensions in the labour market, and therefore wage increases. The tariffs will have an inflationary effect, since the American consumer will pay more for products.

For now, energy is the only element that could have a disinflationary effect. But I doubt that the United States will be able to produce the three million additional barrels of oil per day that it is aiming for. With lower prices, new drilling will no longer be profitable, given that the producers, which are private companies, are financing themselves at relatively high rates. So in the second half of the year, we may be surprised by inflation and perhaps also by the Fed, which might not be as accommodative as many expect.

See also: Ten Investment Convictions for 2025

N. H.-F.: But the inflationary effect of tariffs may be limited by exchange rate movements. I expect a whole range of currencies to depreciate, particularly in those countries that have the highest exports to the United States. The euro has already depreciated, while China has not yet felt the need to use the exchange rate weapon.

Donald Trump has also been elected to address the lack of purchasing power of the American population. Since he wants to lower corporate taxes, he needs new tax revenue, so he has decided to take it from other countries. But these countries will react by weakening their currency, so the American consumer may not feel price increases directly.

The inflationary effect of tariffs may be limited by exchange rate movements. I expect a whole range of currencies to depreciate

D. V.: Many measures in Donald Trump’s election programme will not be implemented. There will be tension with American businesses if he wants to introduce the entire promised system of tariffs. There will probably be negotiations, which will result in significantly lower tariffs. With regards to immigration, he is not going to close the borders or escort workers back to the border, because the American economy needs these people.

The US economy is in a phase where, particularly with the policies of Donald Trump, the objective is to stay ahead of China and Europe. With the American population ageing, the demand for labour is strong. It would be extremely bad timing to send workers back to the border when the American economy is in dire need of these people. In my opinion, only between 20% and 30% of the measures announced will actually be introduced.

N. H.-F.: I believe that the US administration will make a move towards a legal immigration policy that adapts to the needs of the economy. The government may be able to process immigration applications through the usual channels. But that will take a while and will therefore create a period of friction in the labour market. There could also be a rise in low-level incomes, due to people being sent back to the border.

Does the US economy really need lower rates and additional support? Growth is holding up, inflation is not far from the 2% targeted by the Fed, and financial assets are close to record levels.

E. D.: The Fed still wants to return to a neutral interest rate level. The US economy has been more resilient to high rates than expected. We were wondering whether it would be a soft landing or an emergency landing, but it turns out there was no landing at all. Growth, which is expected to slow to around 2%, is not excessive, so the Fed does not want restrictive rates. Markets like rate cuts, but are concerned more with the trajectory than the actual level. At HSBC, we anticipate five rate cuts over the next six to eight months. We are not in a scenario where the Fed will suddenly talk of having to raise rates in mid-2025.

K. M.: The second half of the year could be a little more complicated, not because the Fed will pivot and raise its rates, but because it might be forced to send the message that it must wait and see. The US market in particular is like a spoiled child, which might be disappointed if it doesn’t get its presents – specifically, additional rate cuts after the first half of the year.

D. V.: We could very well have a Fed that will delay action during the first half of the year, especially given the pro-cyclical policies and measures that will be introduced by Donald Trump – notably tax cuts and some tariffs that could temporarily fuel inflation a little. It will not be easy to find the neutral rate.

Why is this?

D. V.: Usually, with an inflation rate of 2%, a neutral rate would be 2% plus a bit. Yet, today, the unemployment rate is almost at a historic low in the United States. The Fed will therefore not want to lower its rates too much since otherwise the low unemployment rate would create new wage pressures. Everything will likely be decided during the first half of the year; Jerome Powell will want to show that the Fed has already gone part of the way. This risks upsetting Donald Trump, who wants the Fed to be as accommodative as possible.

Am I right in thinking that the president cannot fire the Fed chair?

D. V.: Theoretically he can, but he has no real incentive to do so because Jerome Powell’s term ends in 2026, so he might as well let him see it out.

N. H.-F.: Donald Trump has publicly stated that he has no plans to make any changes to the Fed before Powell’s term ends.

E. D.: And Powell has also said he would not leave before the end of his term.

In equity markets, do you expect technology stocks to continue to lead the way in 2025, even if growth expectations may seem extravagant?

K. M.: Given the size of the tech giants, these companies will continue to weigh heavily on the indices. But their growth and stock market performance will likely slow down, because it’s harder to maintain mind-boggling growth rates when you reach such a huge size. But that does not mean that we have a negative feel about this sector.

N. H.-F.: After two years in which markets were largely driven by technology stocks, additional sectors are expected to grow. Perhaps we will see a catch-up by cyclical sectors such as commodities, activities linked to reindustrialisation, or sectors benefiting from increased infrastructure spending. Market gains may perhaps be weaker, but with a broader base.

After two years in which markets were largely driven by technology stocks, additional sectors are expected to grow

E. D.: I think we will also see a bit of rotation within sectors, with reactions to announcements by the US administration and to international events and geopolitics. We are moving towards a ‘stock picking’ market: investing in the main indices will not be enough, we will also need to seek out opportunities within certain sectors.

D. V.: I agree that the trend should broaden, but we also have deregulation, which should benefit several specific sectors, including the financial sector. Further, technology, and especially artificial intelligence, is extending this unbridled growth. But it’s unclear to what extent Donald Trump will seek revenge against the big tech companies that censored him. This could weigh on the entire sector.

Going back to the words that could characterise 2025, you didn’t mention ‘wars’, whether military or trade. Are these not risks that need to be considered in your opinion?

D. V.: A ceasefire or peace in Ukraine, even on terms that are not favourable to Kyiv, would lift the sword of Damocles hanging over Europe. This would be an extremely positive stimulus for business and consumer confidence on the Old Continent.

K. M.: We have reached a point of weariness regarding the war in Ukraine, both on the ground and among the donors. A pause or peace, even if it is only a stage, would reduce the risk premium that markets put on European companies.

N. H.-F.: The new direction of the Trump administration will lead to a rethink of international relations. In the same manner that, post-pandemic, international trade has adjusted to multi-polarity by prioritising the security of supply chains rather than lowest price, international relations will have to accommodate the side-by-side existence of different systems, different priorities, different political approaches. This will be a valuable learning experience for years to come.

E. D.: In conversations with clients, there is some optimism that having a president like Trump will force warring parties to engage in dialogue. We have found that geopolitics has become a more frequent topic for clients, sometimes before any questions concerning economic fundamentals.

D. V.: In this tense political climate, we need to monitor the price of oil, which can be a conveyor-belt from a political crisis to an economic crisis. If the situation deteriorates to such an extent that a barrel soars above USD 100, people will face economic pressure and will stop consuming. However, for the moment, and in spite all today’s geopolitical crises, the price of oil has not been this low for several years.

In this tense political climate, we need to monitor the price of oil, which can be a conveyor-belt from a political crisis to an economic crisis

And what about a trade war? Will the risk become a reality? And if so, what would the consequences be in your opinion?

K. M.: But we are already in a trade war – the election of Donald Trump only lends extra weight to the conversation. Tariffs are currently in place: on Chinese cars in Europe and North America, or on cognac in China. Globalisation may have gone too far, with products or components travelling thousands of miles to save a few cents.

To reiterate, after the fears born from Donald Trump’s campaign statements, tariffs may turn out to be ‘reasonable’. But in any case, we will be a long way from the free trade regime that existed before his first presidency. The trade war may not have reached a dramatic level, but we are already in one.

If this protectionism intensifies, at what point is the global economy at risk from a slowdown?

D. V.: In my opinion, this is the main risk weighing on the global economy and financial markets. We all assume that Donald Trump announces high tariffs only as a negotiating tactic, and that we will start with a promise of 60% and end up with 10% or 20%. But if Trump 2.0 turns out to be very different from Trump 1.0, and if he makes good on his announcements and doesn’t negotiate down, it will open the door to protectionism. Even allies like Europe would retaliate with tariffs on American products. In economic history, this kind of escalation has usually led to economic disaster. It is a risk, but with a low probability of it coming true.

N. H.-F.: I don’t think we’ll see an escalation that would lead to a real trade war. Representatives from the most exposed countries, such as Mexico and Canada, have rushed to speak with Donald Trump. I don’t think that the extremely high tariffs bandied about during the US election campaign will be implemented, so the risk of escalation will be eliminated. On the other hand, direct investments in the United States will probably increase. The desire to reindustrialise the country will generate more capital flows into the United States.

E. D.: We have seen this in the past; the North American Free Trade Agreement, NAFTA, is a good example. Donald Trump initially threatened to withdraw or to change it profoundly, before negotiating and finally leaving many things unchanged. this approach generates the desire for dialogue and negotiation. What will ultimately be announced is not yet known, but it does give cause for optimism. Incidentally, ‘optimism’ may also be another word for 2025.

Let’s move closer to Switzerland by looking at the situation in Europe, our main trading partner. What do you expect for Europe this year? Are any of you optimistic about the eurozone?

K. M.: In absolute terms, no. In relative terms, just a bit, because expectations are very low and the markets are very negative with regard to Europe. We can’t rule out a deterioration of the situation in France and Germany. On the other hand, many European companies have production units in the United States and could benefit from the good health of the American economy, without being subject to possible tariffs. China could also provide some traction if it recovers, which could be important for Germany in particular.

E. D.: Among the major regions, Europe is the one that faces the most challenges in terms of economic growth, compared to the United States or China. India is benefiting from a fairly strong structural and cyclical movement, the United Kingdom is ultimately pulling through relatively well too. But despite relatively low expectations, we are able to find some opportunities in Europe, particularly in bonds (credit), because the European Central Bank (ECB) will continue to lower its rates and support the economy.

N. H.-F.: Attractive valuations do not always herald a positive performance. Europe needs a catalyst, but it is very difficult to find one when governments are weak, as is the case in France, Germany and certain countries on the European periphery. They are not in a position to take strong measures, for example in terms of deregulation, which would be a welcome development for the European financial sector.

D. V.: France will probably remain in a state of lasting political instability, but the jolt could come from Germany. The right is likely to return to power after early elections scheduled for February. No matter whether the next government is right-wing or left-wing, consensus is growing that the debt brake, which has featured in the Constitution for around fifteen years, should be eased. This could give Germany breathing room and a chance to gain fresh momentum, which would have a positive impact on the eurozone. Moreover, given the difficulties in the zone, I do not understand why the ECB hasn’t lowered its interest rates further. An ECB president like Mario Draghi would have probably already lowered them much more.

Moreover, given the difficulties in the zone, I do not understand why the ECB hasn’t lowered its interest rates further

What growth prospects do you see for the Swiss economy in 2025? And is a strong franc inevitable?

E. D.: It is difficult to escape the strong franc, given the flows towards safe-haven assets that we are observing, and given the geopolitical and trade situation. We note that the National Bank (SNB) is now mentioning the strong franc in its communications, and speaks of its impact on inflation forecasts, which have dropped a little for the coming years. But this does not mean that the SNB will intervene significantly to weaken the franc. It is very likely that the franc will remain strong. The Swiss economy is still resilient.

N. H.-F.: The strong franc is a fitness programme for Swiss companies, since they are very export-orientated.

K. M.: They have been great athletes for a long time now!

N. H.-F.: Yes, they are in very good shape, so they are able to adjust. What will be decisive is the speed at which the franc strengthens. The SNB is calibrating this speed and we cannot rule out that it will start intervening on the foreign exchange market again if it deems it necessary. But, generally speaking, the strong franc has been one of the factors that has kept the Swiss economy on the path of productivity and innovation.

The situation is different depending on which currency you are benchmarking against. The franc will continue to appreciate against the euro, simply because Switzerland is doing much better than Europe. But the dollar has a huge credit spread in its favour and the economic outlook is better for the US than for Switzerland. The economic cycle should also support the dollar against the Swiss franc.

The franc will continue to appreciate against the euro, simply because Switzerland is doing much better than Europe

Do you think we will return to negative rates in Switzerland?

K. M.: I don’t think so, that would really be the solution of last resort. The first experiment in negative rates was not a resounding success. It was poorly received by the population, who saw their pension assets paying negative interest. Globally, negative rates have not been very effective and I think it is very unlikely that we will see them again in Switzerland. But if circumstances force it, the SNB could bring its rates down to 0% or 0.25%. This is not necessarily the scenario to be expected in 2025, but we can’t rule it out given the inflation dynamics in Switzerland and the level of the Swiss franc. And if at some point the ECB becomes a little more proactive and aggressive in its monetary policy, the SNB will have to follow suit to prevent the Swiss franc from soaring.

D. V.: I don’t believe in the return of negative rates, because the SNB will keep it as a tool for emergency situations only, for example in the event of general deflation beyond Switzerland. But this is not the case today: Switzerland has not experienced a recession in recent years and is expected to see growth of close to 1% next year. So we will probably stay with positive rates, most likely 0.25%. On the other hand, the SNB is effectively opening the door to interventions on the foreign exchange market. This allows the Swiss franc to be strong, but not to appreciate too quickly. Yet today we might question the idea that the franc is actually all that strong...

Really? Exporting companies will be curious to know more...

D. V.: According to the purchasing power parity model, i.e. the purchasing power generated by one currency in relation to another, the theoretical value of the euro against the Swiss franc is around 0.94-0.95. So at its current level, the franc is not that strong. In recent years, given a lower level of inflation in Switzerland than our European neighbours, our franc has gained in purchasing power. This equilibrium value, or theoretical value, is not far from the situation in which we find ourselves today. The SNB is opening its toolbox slightly, but I’m convinced that it does not consider the Swiss franc to be too strong at these levels.