But despite potential headwinds, global growth is projected at 3 per cent for 2025, with the US outpacing Europe, MIFL said in a statement. Geopolitical tensions, particularly potential trade conflicts involving the US, Europe, and China, could reshape growth prospects and create inflationary pressures. However, such market volatility could also present opportunities for investors who adopt a diversified approach and maintain a long-term perspective.

MIFL’s Global Market Outlook highlights the positive outlook for both equities and bonds in the year ahead. Technology innovation and the energy transition are expected to continue to drive equity market growth, with the technology and healthcare sectors showing strong growth, while bonds may be more attractive than they have been for decades as inflation eases. 

MIFL’s key projections
Inflation outlook is steady, having eased over the past year and is now close to US and eurozone targets of 2 per cent and 3 per cent respectively.

Further interest rate cuts are expected in 2025 with two more expected by the US Federal Reserve and six by the European Central Bank (ECB) which should ease consumer pressure and support economic growth, benefiting bond and equity investors. 

The euro could weaken due to divergent interest rates, however this may be a boost to eurozone export competitiveness. 

There is a risk of a potential trade war between China, Europe, and the US which could drive inflation higher.

Asset allocation 
Corporate profits are projected to remain robust, with analysts forecasting 12.5 per cent global earnings growth over the next 12 months, led by India at 18 per cent, America at 15 per cent, China at 10 per cent, and Europe at 8.5 per cent. Technology is expected to have the highest level of growth (+22 per cent) followed by healthcare (+19.5 per cent).

MIFL expects a positive outlook for equity markets with conditions favouring gains, though investors should monitor geopolitical and economic developments.

“Technology innovation and the energy transition are expected to drive long-term growth in equity markets fuelling corporate profits and boosting tech stock prices, with both trends expected to continue,” MIFL said. 

The bond market outlook is positive, according to MIFL, with opportunities in corporate, emerging markets, and sovereign bonds. With the softer macroeconomic backdrop, European and emerging market fixed income assets are expected to outperform US counterparts, where investors may perceive risks.

Politics
“The re-election of US President Donald Trump, combined with Republican control of Congress, is likely to lead to higher tariffs on China and Europe, affecting global trade dynamics, particularly European and Chinese exports,” MIFL said.

President Trump's agenda of large fiscal stimulus, tax cuts, and increased spending could exacerbate the US's already high debt levels (above 100 per cent of GDP) and drive inflation higher.

Europe faces political challenges, with France's budgetary struggles and Germany's upcoming February 2025 elections following a no-confidence vote. Bond markets are monitoring the economic impact of these instabilities and the US.

Trump's trade policies and tariffs on Chinese goods could worsen China’s economic slowdown, affecting supply chains and other emerging economies. A stronger US dollar may also increase the cost of servicing dollar-denominated debt.

"The global economy in 2025 presents both opportunities and challenges, shaped by technological innovation, the energy transition, and shifting political dynamics,” Brian O’Reilly, head of investment strategy at MIFL, said. “While global growth is expected to remain steady at 3 per cent, geopolitical tensions, including trade tensions conflicts involving the US, Europe, and China, could heighten market volatility. By adopting a diversified approach across asset classes, maintaining a long-term perspective, and utilising tools like Mediolanum’s proprietary IIS (Intelligence Investment Strategy), investors can turn such periods of market turbulence into opportunities in the year ahead.”