Navigating risk and treasury management chances in 2025

The 2024 US elections will define the global macroeconomic outlook in the year ahead, especially Donald Trump’s return for a second presidential term with control over the House and the Senate.

With the Trump administration ready to go head-to-head with any country that dares challenge US dominance — particularly China — and wielding the threat of tariffs and trade restrictions, the global economy is holding its breath.

Markets are wondering if the trade wars will be a passing storm or a long, drawn-out battle that will leave scars on the global economy. These policies have the potential to upend supply chains, shift global manufacturing, create currency challenges and stoke inflation. 

Faced with the risks of resurgent inflation and rising geopolitical uncertainty, interest rates are expected to remain above pre-Covid levels. With the added inflationary impulses in the US, the Federal Reserve looks set to implement shallower rate cuts this year. In contrast, the European Central Bank is likely to implement bigger cuts, with the deposit rate set to drop to just below 2% by end-2025. 

In the UK, inflation will probably rise close to 2.8% by mid-2025, partly on utility prices, with a fairly muted impact from a US “universal tariff”. However, this figure seems likely to fall closer to 2.5% by year-end as services inflation continues to moderate.

The Bank of England monetary policy committee is likely to keep its strategy of gradual policy loosening intact, with its interest rate set to fall a further 50 basis points (bps) to just above 4% by end-2025. 

In countries where inflation is rising, such as Japan and Brazil, central banks are likely to hike interest rates in 2025. While uncertainty abounds about the scale and impact of Trump’s proposed tariffs, it is expected that US trading partners will avoid extra tariffs of more than 10% through negotiations and that retaliation will be more symbolic than meaningful. 

In this scenario the quick but ultimately moderate approach to policy changes, with the extra impetus to already solid US activity from future tax cuts, should support global GDP growth of 3.1%.

The 20-country eurozone finds itself in a difficult position, with economic indicators continuing to point to a loss of momentum. Manufacturing remains weak, while political problems in France and Germany will further cloud the outlook for 2025. This is before the implications of the new US administration are considered.

These factors prompted analysts to downgrade eurozone GDP growth to 1.2% from 1.5%. However, we remain cognisant of downside risks should Trump impose more drastic trade measures. 

Among emerging markets, Chinese exports and overall GDP growth will experience a sharp hit in 2025 should Trump opt to impose his proposed extreme 60% tariff on all US imports from China. 

In SA, the economy is poised to enter a cyclical upswing, with GDP growth expected to increase from about 1.1% in 2024 to 1.9% in 2025, according to Investec projections. 

The local economic outlook is improving, driven by recovering domestic demand supported by renewed postelection confidence, improved power generation with no load-shedding since end-March, and declining interest rates.

The IMF noted in the conclusion of its 2024 Article IV mission that the government of national unity (GNU) represents “an opportunity to put SA’s economy on a path towards higher and more inclusive growth”.

According to the report, the GNU’s fresh mandate offers a “historic opportunity to build on these strengths and pursue ambitious reforms to safeguard macroeconomic stability and address impediments to growth to achieve higher standards of living for all”. 

The IMF identified SA’s diversified economy, abundant mineral wealth, flexible exchange rate, credible inflation-targeting framework, deep financial markets and ability to issue domestic-currency debt as sources of strength. Among these factors, SA’s mineral resources sector will remain a critical growth driver.

Gold prices will enjoy sustained strength as more central banks buffer their foreign reserves with increased gold holdings, making it a key long-term investment. Battery metals such as copper, cobalt and lithium are also potentially poised for growth in the medium-long term, driven by the pace of the transition to electric vehicles. 

Beyond this thematic trend, China’s economic policies will be crucial to support commodity prices in 2025. Looser fiscal and monetary policy in China could have a positive effect on the commodity basket. Risks to commodity prices include geopolitical dynamics and sustained dollar strength. When the dollar is strong, commodity prices tend to come off because they become more expensive to import for nondollar economies. 

With the global economic environment likely to remain volatile, businesses and investors should implement considered strategies that strip out human emotion and take a more methodical approach to money and investment management. 

• Shields is treasury sales dealer, Steinhobel head of interest rates and FX structuring, and Jivan in commodities structuring and trading, at Investec.