In a recent roundtable discussion, Morgan Stanley offers a mixed outlook for the global economy and markets in 2025. They project global growth to hover around 3%, but with notable regional differences. The US may face a slowdown as fiscal stimulus fades and the effects of monetary policy linger, compounded by rising tariffs on China that could drive inflation higher. Europe is expected to see stable yet sluggish growth, while China grapples with risks from a debt deflation spiral.
Equity markets are likely to yield high single-digit returns, primarily fueled by earnings growth rather than an increase in valuations. The credit markets present a more complex scenario, with a potentially strong first half of the year followed by growing uncertainty in the latter half, influenced by changing US policies and geopolitical tensions. Investors are encouraged to focus on stock picking due to significant variations in performance, and to explore opportunities in the leveraged loan market, while exercising caution in Asia's credit markets.
