5 in 5: the key trends of 2025

The middle phase of economic cycles often lacks clear, definitive trends, and 2025 is no different, according to ANZ Chief Economist Richard Yetsenga. But his view is geopolitical themes and sporadic interest rate cuts should dominate much of the global economic zeitgeist through the year.

Speaking to the 5 in 5 with ANZ podcast, Yetsenga said 2024 had been defined by “interest rate purgatory”, a theme likely to continue in the new year.

“There is a trend to lower rates, but it's not linear, it's not broad, it's not highly correlated, and it's not aggressive,” he said. “That's the dominant theme for me. “

With private sector balance sheets in good shape, Yetsenga told the podcast he does not believe the chance of global recession is any greater now than in recent years.

“The proximate driver to me is the 15-year shift in global financial sector regulation,” he said. “If banks hold a lot more capital so [they] can withstand greater losses, if they’re also lending to customers that are on average more credit-worthy, they should actually suffer fewer losses and then have this greater buffer to deal with them.

“Economies are going to handle higher rates in better shape – and in fact be more responsive as rates come down a little bit.”

Insufficient demand was unlikely to be an issue in 2025, Yetsenga said – at least in most sectors.

“Consumer discretionary as a general challenge; it has been a bit of a tough space and remains a tough space,” he said. “But in many parts of the economy I think the main issue is access to resources, particularly access to labour at a price which allows you to be profitable.”

Geopolitics – including the re-election of President Donald Trump in the US – will also continue to influence market decision making in 2025, Yetsenga said.

Foundations

China’s various steps to address its economic slowdown will have an impact on the macro environment in 2025, Yetsenga said, with stability a key focus.

“My judgement though is this is designed to shore up the foundations for growth, improve balance sheets and get things in the economy back towards a more stable footing rather than trying to spark an aggressive upswing in GDP growth,” he said.

ANZ Chief Economist for Greater China, Raymond Yeung, told 5in5 those measures would dictate much of the China’s economic success in 2025.

“We think that most of these policies will at least help China to stop-loss,” he said. “I would… describe it as a L-shaped scenario.”

There are some upside risks to growth, Yeung said, although the bank’s current base scenario was for gross domestic product growth of 4.3 per cent. While youth unemployment remains very high, ANZ Research believes that number will start to come down in 2025.

“Now of course, I’m not saying that we will see a strong recovery or strong rebound next year, but at least I think some of the stimulus seems to be able to support some moderate improvement in sentiment and the financial risk facing China,” he said.

The region will also face a number of risks from further afield, Yeung said, including from potential US tariffs.

“There’s a lot of talk about very high tariffs rates imposed on Chinese goods that will hurt Chinese exports,” he said. “That’s obviously a downside to China’s economic momentum.”

Exposure

The possibility of restrictive US trade policy on China means businesses operating in the region may continue to employ nearshoring and friendshoring strategies to minimise exposure, according to ANZ Head of Research for Asia, Khoon Goh.

“Vietnam has been one of the main beneficiaries of the whole China-plus-one diversification strategy,” Goh told 5in5. “India has also been a huge beneficiary of that, other countries like Malaysia as well.”

“And they can continue to benefit if Trump imposes those additional tariffs against China – provided he doesn’t impose restrictions on the other economies as well.”

Goh told the podcast he expected Asian FX markets to continue to struggle against the US dollar through 2025.

“We’ve seen the US dollar go on a crazy rollercoaster ride, strengthening and then followed by periods of weakness,” he said. “But overall, we’ve seen Asian currencies on track for a fifth year of depreciation against the dollar, as the US economy is still looking resilient.”

ANZ Chief Economist for Southeast Asia, Sanjay Mathur, told 5in5 economic headwinds would impact economies across south-east Asia in 2025 - particularly in Indonesia, Thailand, Malaysia and the Philippines.

Private consumption has been “fairly mild”, he said, and ANZ Research does not see “much investment activity, with the sole exception of Malaysia”.

“Exports have started to become a lot more volatile,” Mathur told the podcast. “They’re not sinking at this point in time, but they’ve become more volatile, and interestingly this is coming ahead of any tariff announcement from the US.”

ANZ Research expects between 25 and 75 basis points in rate cuts across the four south-east Asian economies in 2025.

“What’s interesting about this is even that will leave you with very high interest rates, assuming these go through,” he said. “That is not particularly conducive to the growth environment.”

Ramp up

New Zealand began easing interest rates in August 2024, and ANZ Chief Economist for New Zealand, Sharon Zollner, told 5in5 the economy’s sluggish recovery may soon ramp up.

“There’s a range of views out there, which make perfect sense, but our own Business Outlook survey is suggesting that actually it could be reasonably vigorous,” she said.

“It does look like the fourth-quarter GDP [is] going to be the start of the recovery and so we are anticipating a much better 2025.”

Inflation remains a risk, Zollner warned, despite the fact New Zealand has suffered its softest GDP figures in decades.

“We’ve just seen the weakest six months in New Zealand GDP since the early 1990s,” she said. “But there were just a few suggestions in our Business Outlook survey that costs are sticking around and, in some aspects, may be worsening.

“It is just worth bearing that in mind, that the Reserve Bank [of New Zealand] will be weighing up the risks on both on the upside and the downside to inflation.”