Global growth remains resilient in 2025; economies expected to benefit from Fed rate cuts: Allianz chief economist

THE global economy faces a delicate balancing act in 2025, as nations strive to reduce public support while boosting private-sector growth.

Despite slowing growth in the US, projected at 1.7 per cent, resilient global growth of 2.8 per cent is anticipated, fuelled by China’s stimulus efforts and the benefits from the US Federal Reserve’s expected rate-cutting cycle.

Ludovic Subran, chief economist at Allianz, highlighted to The Business Times that the US presidential election will be a crucial influence on inflation, growth and trade.

A win for Kamala Harris could trigger recession concerns with higher taxes and potential job losses.

He said: “There will be greater concerns for recession, with the risk of an uncontrolled landing, more pickup in unemployment, as well as heightened concern about how Americans would face increased taxes when it comes to their investments, especially in the areas of the green transition and the digital front.”

In the event former US president Donald Trump wins, inflation could jump by “almost a point and a half”, due to the tariffs and deportations he has promised.

In terms of the rate-cut cycle, the Fed has more room to manoeuvre under a Harris presidency. It is expected to continue cutting interest rates by 100 to 150 basis points between January and September next year, leading to a key interest rate of around 3 per cent, in what is known as an orderly loosening cycle, noted Subran.

However, if there is a resurgence of inflation driven mostly by Trump’s policies, the Fed will be halted halfway through its loosening cycle, affecting market volatility, the housing market, and credit quality altogether.

Reviving the Chinese economy

Subran sees the recent measures announced by the People’s Bank of China – aimed to spur growth – as “a very holistic package”, which may boost China’s growth by close to one percentage point over the next 12 to 18 months.

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Beyond the short-term stimulus, the economist pointed out that structural reforms are needed to revive the Chinese economy in the longer term.

He said: “If it is just money put into the economy, this is good for relief, especially on the developers’ side. However, to recreate the positive feedback loop for Chinese savings in the housing and financial markets, more forward visibility on social protection, healthcare and the business environment is needed.”

There is a perception that the Chinese economy has become even more state-dependent than before, which is one of the main impediments for investment. It is thus crucial to build sustained confidence through greater visibility on policy directions, added Subran.

The latest global insolvency report released by Allianz Trade revealed a more severe outlook for businesses, with global insolvencies projected to rise by 11 per cent this year, steeper than previously anticipated.

This can be partially attributed to liquidity issues, where companies whose working capital requirements increased exposed themselves to greater non-payment risk, said Subran.

The other reason is the impact on some companies’ financials. With interest rates having risen rapidly over the last few years, some firms are now facing higher refinancing terms.

In 2025, global business insolvencies are expected to rise moderately by 2 per cent. “Having seen an increase in the insolvencies of large firms, there is now a bit of a domino effect on the suppliers, so a lot more small and medium-sized enterprise insolvencies are expected in 2025,” said Subran.

Looking ahead, he is keeping a close eye on the risk of polarisation, because with the cost-of-living crisis abating, there is greater scrutiny over what governments are doing in terms of tax, social protection and labour policies.

He said that if history serves as an example, when inflation surges, social unrest follows five to 10 years after the peak. Therefore, maintaining the social compact and ensuring that leaders look at inclusive growth drivers are crucial.