Trump, AI and geopolitics turn investor world upside down in 2025
Big tech, artificial intelligence, Donald Trump, geopolitical shifts, dollar weakness and responsible investing... 2025 was an eventful year that calls for reflection as well as answers. That is why Mark Van Assche, account manager Private Banking and Wealth Office, put five pressing questions to three KBC Asset Management experts: Mailee Hovsepian, Heng-Ta Quach and Nathalie Bally. Their goal? Clear answers, a broader perspective on 2025 and insights for 2026.
11/12/2025
Economy
- Weakening job growth and shrinking savings surpluses, along with inflation remaining high due to higher import tariffs, are weighing on US consumers' purchasing power. Our economists do not anticipate a recession, and in fact have slightly upgraded their growth forecasts for 2025 and 2026 - though the rate of growth is admittedly slightly lower than in recent years. Overall, therefore, we are still looking at a slowdown in growth.
Commodity prices - inflation
- With energy prices under control and declining wage growth, inflation rates are continuing to fall almost everywhere. Inflation in the euro area is already within the central banks' 'comfort zone'. In the US, however, core inflation remains somewhat higher and the rising import duties are having a noticeable effect on output prices.
- With a number of key trade agreements in place, the new average import tariff is estimated at 15% (compared to 2.5% before Trump II). These levies are expected to gradually trickle down into retail prices in the coming months, keeping inflation above the Federal Reserve's target for several more months.
Budgetary and monetary policy
- The 'Big Beautiful Bill', which mainly extends the expiring tax cuts from Trump's previous term, is expected to provide a limited boost to growth. Meanwhile, the US government shutdown has been lifted for the time being.
- China continues to regularly support its flagging economy with new policy measures. In the euro area, the major investments announced for defence and infrastructure are gradually taking more concrete shape, although it looks as if their impact won’t be felt fully until 2026-27.
- The ECB kept its deposit rate unchanged at 2% in September, with further movements dependent on economic data. Our economists do not expect the Bank to cut interest rates further next year.
- The Fed lowered interest rates as expected. The dot plot projects just one rate cut in 2026, but we and the market believe that two will be made as early as the first quarter.
- US President Donald Trump is expected to name Chairman Powell’s successor early next year.
Bond markets
- Despite weaker growth, falling inflation and lower key rates, bond yields remain at somewhat higher levels in both the US and Europe.
- The fiscal about-turn by the new German government, lifting the ‘debt brake’ and allocating a generous budget to relaunch policy and defence spending, explains the higher yields in Europe.
- The -once again- volatile political situation in France caused interest rates to rise a little further.
- In recent weeks, interest rates have normalised and stabilised somewhat.
Stock markets
- Stock markets have again climbed to new historic highs in recent weeks. They performed well during the entire year, but there is no sign of a Christmas rally.
- Valuations are looking more attractive after a weaker performance in December. Forecasts for earnings in both the fourth quarter and next year are strong, which explains the solid performance.
- The outlook for government investment and investments in AI infrastructure is boosting profits.
- Reduced geopolitical tensions could in turn lead to a reduction in costs due to lower commodity prices.
Risks
- On the financial markets, the conflict in the Middle East has somewhat taken a back seat in recent weeks, but there is nothing to prevent it from flaring up again.
- In Ukraine, an agreement could be on the table. Investors haven’t forgotten concerns about private lending following several bankruptcies, but the markets are less concerned about these developments for the time being and sentiment may turn quickly.
2025 was a good year for the stock markets. Profits are expected to be strong in 2026 as well. After an under-par December, valuations are looking more attractive again.
Siegfried Top, Senior Strategist at KBC Asset Management
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