For both the United States and Europe, the forecasts seem rather optimistic, with the risk of surprises being greater on the downside than on the upside.
What to expect in 2025? Let us try to examine it from the angle of consensus, that is to say the forecast figures currently expressed, on average, by economists, financial analysts and the implicit expectations reflected in market prices.
Photographing the consensus should not be interpreted as an exact forecasting exercise, but as a useful activity to mark the starting point from which future reality will evolve.
On a macroeconomic level, the year 2025 is considered a year of continuation of the global economic cycle.
Eurozone growth is expected to be 1.2%, better than the 0.8% increase expected at the end of 2024. For the United States, growth estimates for 2025 are currently at 1.9%, a slowdown compared to 2.7% in 2024.
Expectations of a gradual acceleration in the eurozone are likely linked to the increase in disposable income, thanks to the fall in inflation to 2% and the resulting increase in consumption. It’s harder to understand why U.S. growth is expected to slow, especially given the Trump administration’s reported support for businesses.
Regarding inflation, 2025 should confirm a stable price environment after the 2022 surge.
In the eurozone, average inflation in 2024 stands at 2.4%, but the trend over the year has been downward, so that one-off inflation is expected to approach 2%. The consensus starts from this value to express the forecasts for 2025, but also those for 2026, which are exactly 2.0%.
Core inflation, which averaged 2.8% in 2024, is expected to reach 2.2% in 2025, which will ultimately bring inflation back to the ECB’s target.
In the United States, a return to pre-Covid levels has not yet been achieved. Average inflation for 2024 is 2.9%, but it stands at 2.6% (October figure) at the end of the year. For 2025, the consensus forecasts an average of 2.3%. Core inflation, the Fed’s preferred measure, averaged 2.7% in 2024 and is expected to reach 2.2% in 2025.
These forecasts, both for the euro zone and for the United States, foreshadow the achievement of the central banks’ target levels. This assumption is shared by the implied inflation of inflation-indexed securities, which has long estimated average inflation for the next few years at just over 2% for the United States and just under 2% for the eurozone.
2025 is shaping up to be a year of central bank interest rate cuts, albeit at different paces.
As for the ECB, the market expects a drop in current rates from 3.25% (deposit rate) to 1.7% in summer 2025. A total of 150 basis points less, six reductions of 25 each, one at each meeting, including the one on December 12.
As for the Fed, Trump’s victory and the expectation of expansionary fiscal measures have reduced, without eliminating, expectations of rate cuts. Rates are now expected to rise from 4.5% currently to 3.8% at the end of 2025, with three reductions over the period, compared to seven planned before the vote.
If we compare monetary policy expectations with those of inflation, we see that a reduction in ECB rates to 1.7% would mean a reduction in rates just below inflation, which would make the moderately expansionary monetary policy, a plausible hypothesis given the weak growth in the zone.
For the Fed, on the contrary, reducing rates to 3.8% would mean keeping them above inflation, that is to say maintaining a certain degree of monetary tightening. Again, this would be appropriate given the strength of the US economy.
In bond markets, it is possible to anticipate the future using forward rates, which provide an indication of future rates reflected in the current shape of the curves.
The euro zone curve, with short-term rates at 3% and long-term rates (10 years) at 2.3%, shows a positive slope of the one-year curve, with short-term rates falling due to ECB decisions and long-term rates close to current levels.
Even more moderate movements for the American curve. Short- and medium-term rates have fallen, but marginally, following the Fed’s decisions. Long-term rates are stagnating around 4.4%.
These indications are perfectly in line with expectations in terms of economic growth, inflation and monetary policy management. The fact that next year’s short-term rates are expected to be lower than today reflects the implicit expectations surrounding ECB and Fed rates.
The immobility of the long parts of the curves reflects the prospects for a continuation of the economic cycle.
These are expectations which would allow investors to benefit from the flow of coupons offered by the bond markets and to realize capital gains in the event of an unexpected slowdown in the macroeconomic cycle (insurance policy against recession).
When it comes to equity markets, the future performance of indices depends on both the evolution of earnings and multiples (PER). Although there are no consensus forecasts for PER, analysts nevertheless produce profit estimates for the years to come.
In the Eurozone, earnings for the Eurostoxx index are expected to grow by 8.5% in 2025 and by 10.8% in 2026. In the United States, forecasts for the S&P 500 index are +14.1% and 13.1% for the next two years. These are estimates that, for the United States, reflect expectations of fiscal support for businesses and the usual large contribution of profits from the technology sector. For Europe, growth rates are lower than those in the United States, consistent with expectations of more moderate economic growth and inflation.
For both the United States and Europe, the forecasts seem rather optimistic, with the risk of surprises being greater on the downside than on the upside.
Profit growth cannot be considered as an approximation of the expected return of the underlying markets, because it must be combined with the change in PERs, already expanding strongly in the United States this year, but much less so in the Eurozone.
