What we got right and wrong in 2025

What we got right and wrong in 2025

In January we thought 2025 would offer “more of the same”, with global activity of 3.2%, a similar pace to 2023 and 2024. That is pretty much what has happened. We thought that US growth would slow to about 2.0% from 2.8% but that it would continue to outperform other major western economies. That looks about right. 

• We were broadly on the money with trends in European growth, which is likely to come in at just over half the rate of the US this year. We predicted that Germany “is likely to show very modest growth this year.” That was an understatement. The German economy looks like to expand by just 0.2% this year, with GDP having contracted in the last three years. As expected, small and medium European nations like Ireland, Poland and Spain have outperformed the large western European economies this year.

• In developing markets, the long-term decline in China’s growth rate has continued, albeit with a growth rate, at around 4.8%, that would be the envy of any western economy.  We underestimated the momentum of Indian growth. The IMF now expects the Indian economy to expand by 6.6% this year, above our initial 6.0% estimate, and an impressive achievement considering the disruption to global trade.

• We were right in thinking that the oil price would weaken in 2025. Tepid demand and an increase in output from OPEC+ countries have seen the oil price fall from a January peak of $82/barrel to $61/barrel.

• UK growth this year is likely to come in around the 1.3% mark, marginally higher than our 1.1% forecast. But we got the profile of UK growth wrong. After near stagnation in the second half of 2024, we expected a weak start to 2025 with activity picking up through the year. Instead growth bounced back and the UK outpaced every other G7 economy in the first half of 2025, supported by US export demand designed to pre-empt tariffs. Growth has stalled since the middle of the year, not gathered pace as we had expected.

• The new US government has proved more radical than we anticipated. We felt that the new administration would probably temporise and negotiate on tariffs, mitigating the eventual increase in tariff rates. The administration has proved willing to negotiate, but the scale of the increase in the average US tariff rate – from 2.5% to 17.0% – is much greater than we expected. The Trump administration has also moved faster than we anticipated on migration. The US government has deported over 600,000 people this year and claims that 1.9m unauthorised workers have left the country of their own volition. In November, the San Francisco Federal Reserve estimated that net migration to the US this year will fall to 515,000, down from 2.2m last year.

• Nor did we expect Germany’s new, CDU-led government, to change the German constitution to allow for significantly higher levels of debt-financed spending on infrastructure and defence. The expected rise in public spending is one reason why most economists expect German growth to pick up this year. 

• In our briefing on energy in February we pointed out that demand for energy from new data centres was soaring. What we failed to anticipate was the speed of the increase in investment on technology and data centres. It now seems likely that well over half of all US growth this year will have come from tech-related investment.  We should also have placed more weight on the risks to growth of a rising wave of cyber-attacks.  The five-week closure at leading UK carmaker JLR, for instance, reduced September GDP by 0.17 percentage points, enough to depress growth for the whole of the third quarter by almost 0.1 percentage points.

• We, along with most economists, were broadly correct in expecting 2025 to be a year of continuing, unspectacular global growth, with the US economy slowing and interest rates and inflation falling in most western economies. The scale of the rise in US tariffs caught us by surprise as did the way in which AI became a major driver of US growth. Those two big shocks, one negative and one positive, have perhaps cancelled each other out in terms of the short run impact on activity, leaving US growth performing as had been expected at the start of the year.

• The surprises in the global economy in 2025 were less dramatic and immediately consequential than those of recent years. That made the big economic indicators – growth, inflation, rates and so on – easier to predict. Forecasting change elsewhere, in policy and the composition of activity, remained difficult.

• Next week’s Monday Briefing is the last of this year. We’ll be back on 5 January with the results of our latest survey of UK CFOs and, on 12 January, with our view and forecasts on the world economy in 2026.

OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week down 0.2% at 9,649. 

Economics

• The US Federal Reserve cut interest rates for the third consecutive time, to 3.5%-3.75%, noting an increased risk of a labour market slowdown. The decision was split, with two board members voting to hold rates while Stephen Miran, recently appointed by US president Donald Trump, advocated for a larger cut
• The UK economy contracted by 0.1% in October, amid increased business uncertainty in the run up to the government’s Autumn Budget. Investors expect that the Bank of England will reduce interest rates this week
• UK credit card spending fell by 1.1% in November, the largest annual decline since February 2021, according to Barclaycard data, due to poor weather and households’ uncertainty ahead of the Autumn Budget
• Despite declining card spending, UK pubs and bars have seen a surge in bookings over the Christmas period, with major pub chains reporting higher sales compared with the same period last year
• UK banks said they could be exposed to legal risks from the UK government’s plans to use approximately £8bn of frozen Russian assets, which they hold to provide loans to Ukraine, the FT reports
• Investors now assign a greater probability to interest rates rising in the Euro area next year than falling, likely in part due to better-than-expected economic activity and pockets of stubborn inflation. Rising rates in the Euro area would likely add further downward pressure to the US dollar
• The Bank of England announced plans to cut operating costs to boost investment in its economic modelling capacity, as part of measures to address the outcomes of the review into the central bank by former US Fed chair Ben Bernanke
• France’s parliament narrowly voted in favour of the government’s social security budget, which includes suspending French president Emmanuel Macron’s previously proposed plans to increase the retirement age. Negotiations over the government’s budget plans are still ongoing
• China’s trade surplus in goods surpassed £1tn so far this year, the highest amount on record. The decline in goods exported directly to the US was more than offset by exports to other regions, in particular other Asian countries 
• Private credit lending to emerging markets reached a record $18bn this year, filling a gap left by declining bank loans, according to the Global Private Capital Association

 Business

• US president Donald Trump said he will allow US tech company Nvidia to export its H200 chips to China, which had previously been restricted due to national security concerns
• Paramount announced a $108bn hostile bid for the Warner Bros Discovery media company, in an attempt to outmanoeuvre Netflix’s $72bn agreement to buy Warner Bros’ film and TV studios business. Mr Trump said Netflix’s takeover “could be a problem” due to the business’s combined market share
• Microsoft and Amazon announced investment in India worth a combined total of over $50bn over the coming years as US tech companies look to expand AI and cloud services in the country
• Disney announced a $1bn investment into US tech company OpenAI that would allow its characters to be used on OpenAI’s AI video generation platform, Sora
• Online messaging website Reddit filed a lawsuit in Australia to overturn the government’s social media ban for children, saying it interferes with free political communication
• US car manufacturer Ford agreed a partnership with French rival Renault, whereby Renault will build two new, Ford-designed EV models in Europe in an attempt to boost its competitiveness in Europe against Chinese rivals
• The UK Parliamentary Contributory Pension Fund face criticism for having less than 3% of its equity portfolio invested in UK shares, lower than private sector funds and contrasting with the government’s plans to boost investment into UK assets
• The NHS said it is facing a “worst-case scenario for this time of year” due to a record high number of hospital patients with flu in November, a record number of A&E visits and an impending junior doctors’ strike

 Global and political developments

• Ukrainian president Volodymyr Zelenskyy said he would give up on demands for Ukraine to become a member of NATO in exchange for US and European security guarantees. Ukraine would join the EU next year, according to the latest draft peace proposal from Ukraine and European officials, the FT reports
• Mr Zelenskyy also said he would be ready to hold presidential elections within coming months if European nations and the US could ensure security. Mr Zelenskyy previously faced criticisms from the US for not holding elections when his term was due to end last year, despite elections being postponed under martial law
• Lithuania declared a nationwide “emergency situation” following the entry into its airspace of hundreds of giant weather balloons carrying smuggled cigarettes from Belarus. Belarus's leader is a close ally of Vladimir Putin, and the balloon incursions appear to be an attempt to destabilise Lithuania
• Russia’s central bank is suing the Euroclear depository system for freezing €185bn in frozen Russian assets, amid attempts by the EU to use the assets to fund a €90bn loan to Ukraine 
• NATO chief Mark Rutte said that “we must be prepared for the scale of war our grandparents and great grandparents endured” and called for greater preparations by NATO members for a war with Russia
• Mr Trump labelled European economies as ‘decaying’ and called their leaders weak for failing to curb migration and end Ukraine’s war with Russia
• The Trump administration announced plans for applicants who want to visit the US under the visa-waiver programme, which includes citizens from the UK and France, to disclose the past five years of their social media history 
• US military forces seized an oil tanker off the Venezuelan coast, escalating tensions between the nations. The Trump administration said the tanker was bound for Iran that currently faces sanctions. Venezuela’s foreign office condemned the act as “international piracy”

And finally… a wild racoon broke into a liquor store in Virginia, US, and began sampling the products throughout the night. Police attended the scene the next morning to investigate reports of a robbery, only to find the racoon sleeping off its hangover in the toilet – drunk as a skunk