2025 Market Outlook

It was a very good 12 months for financial markets, with many international equity markets reaching record highs, while international bond markets also performed well as the world’s central banks began to cut interest rates in response to signs of easing inflation. 

Supportive of equities was a US economy that showed resilience; it grew at an annual pace of 3.1%, created more jobs than expected, and consumer spending was supported by rising wages. 

As we look ahead to 2025, the good news is that economic data suggests the US – and many of the world’s other major economies – should avoid a recession. On the other hand, geopolitical tensions in Europe and the Middle East have been, and continue to be, a risk for markets. Here are some key themes we are looking out for this year. 

The US economy was the shining light in 2024, with its share markets outperforming most of its global peers, while the US dollar also rose sharply.  

Equity markets there were supported by gains in the ‘Magnificent 7’ – a group of companies that have had a stellar run on the back of continued optimism surrounding the uptake of artificial intelligence (AI). Meanwhile, consumer spending, which makes up two-thirds of the US economy, continues to hold up relatively well. 

However, despite the stellar run, we are seeing signs that equity markets are looking expensive. By the end of 2024, valuations - the price investors pay relative to the profits of the company- are at multi-year highs.

Despite a challenging 2024 in New Zealand, which saw the economy fall into a recession, we expect the worst has passed and the economy should begin to recover in 2025. 

Further interest rate cuts should support lending and be a net positive for households and business, while it appears the central bank has inflation under control – an important factor as some global economies are showing signs that progress on inflation may have stalled.

As we look ahead to 2025, we are optimistic about financial markets, despite recognising the challenges posed by geopolitical risks.

A major concern is potential policy shifts under a Trump presidency, notably renewed trade tensions and tariff threats, which could disrupt global supply chains and investor confidence. This could lead to higher inflation and a slower pace of monetary easing.

The ongoing war in Ukraine remains a source of instability, affecting energy markets, food security, and broader geopolitical alliances. Additionally, tensions in the Middle East remain a risk to economic stability, despite the recent ceasefire between conflicting parties. Further disruptions in the region could impact oil markets.

Despite these changes and the evolving investment landscape, ANZ Investments remains committed to active investment management. We will continue making thoughtful decisions to help our investors achieve their financial goals.