Economic Outlook: on target for a soft landing?

Atradius economists adopt an optimistic, though cautious, tone.

The pilots of the global economy are preparing for landing. To continue the analogy, we’re ready to hit the ground and the ‘fasten your seatbelts’ sign is illuminated. 

In fact, this is the title we have adopted for our December Economic Outlook in which our team of economists including Dana Bodnar and Theo Smid along with myself, unpick the global landscape. We ask whether we can we expect to see economic growth over the next year and whether there are distinct patterns arranged regionally or across the maturity of economies. 

The seatbelts analogy is, admittedly, somewhat precautionary language. We’re not expecting turbulence. In fact, thanks in part to the braking effect of recent monetary tightening combined with the cushioning of gentle growth, we’re fairly sure we are approaching a soft landing. 

Global inflation is under control and is pretty close to central bank targets in most geographies. Commodity prices, including fuel and food costs, are coming down. Wage growth is slowing and the supply chain pressures and bottlenecks we saw playing out during and immediately after the pandemic are finally dissipating with most supply chains returning to normal.

You could argue that, if we’re so sure of the soft landing, why bother with the precautionary language at all? The short answer is that we’re cautious about the unexpected. And in this case, the unexpected is largely embodied by one major player: Donald Trump.

Preparing for the unknown

President Trump will be inaugurated on January 20, 2025. During his election campaign, he proposed policies that have the potential to massively impact the global economy. Primary among these are the promises to impose a 60% tariff on all imports from China and 20% on imports from the rest of the world. 

For some commentators, this unequivocally represents the start of a full-blown trade war. But we’re not so sure. We don’t yet know whether Trump will implement all of the policies he promoted during his presidential election campaign and, if he does implement them, whether they will be to the same degree that he proposed or will be toned down.

While we think it is likely that Trump will increase tariffs against China, we anticipate this will represent a mild strengthening of the current Biden policy. What’s more, the impact is unlikely to be felt until 2026 at the earliest.

Positive effects of decreasing inflation

Perhaps pointing towards Donald Trump as the source of a potential bumpy landing is unfair. Other significant indicators are pretty positive. Primary among these is the fact that inflation has been decreasing without signs that a new recession will be triggered. We also think the next couple of years will feature global growth. Although there are regional variations and overall growth is modest, the global economy keeps growing.

Emerging Asia continues growth trends

As in previous years, we expect to see the strongest growth coming from the emerging market economies (especially in Asia). Admittedly this will be weak compared to some of the strong growth trends exhibited in these markets in the past, but with predictions pointing to growth of 4.0% in 2025 and 3.9% in 2026, this is still about double of that predicted for the advanced economies.

Eurozone growth remains underwhelming

A major cause of the subdued outlook for the advanced economies can be found in Europe. While we are seeing a gradual recovery across the Eurozone through to 2026, helped by the monetary easing that is already underway, some major structural issues are producing a braking effect. Primary among these are subdued consumer confidence and a slowdown in manufacturing, especially in Germany. The industry has been feeling the pressure of higher energy costs, following the Russian invasion of Ukraine, as well as a slowdown in demand from China.

US economy shows resilience

When it comes to inflation, the battle is surely won in the USA and the Federal Reserve is responding by beginning its monetary easing process. Consumer spending is resilient and is underpinning GDP growth that is markedly stronger than that of the other advanced economies. We expect this momentum to continue through 2025 and into 2026 as consumer confidence is likely to remain high. 

The new US administration is inheriting a relatively strong economy. The negative impact of policy changes is not likely to be felt until 2026, so despite the uncertainties that a new president will bring, there should be some degree of stability in the near term at least.

Cautious optimism for modest growth

Of course, none of us have access to a definitive view of the future. We can be fairly sure, based on previous experience and the tone of his electioneering, that Donald Trump is likely to be confrontational in his language and approach. But how much of this actually trickles down to policies that impact world trade remains to be seen. 

Beyond Trump’s policies, other geopolitical issues remain including conflict in the Middle East, Ukraine and the potential for an escalation of the tensions between China and Taiwan. With all this in mind, we’ll err on the side of caution, and fasten our seatbelts just in case. But wider factors impacting the global economy including trade growth, stabilising commodities pricing and disinflation still point us towards a smooth landing.
 

Download our Economic Outlook, December 2024 report