What Challenges Will the Market Face in 2025? Discover Insights from OANDA Analysts

What market trends will dominate 2025? What lies ahead for the U.S. economy in Donald Trump's second term, and how might U.S. events affect global markets? What can be expected from central bank decisions? How will commodity and cryptocurrency prices evolve? OANDA analysts Lukasz Zembik and Krzysztof Kaminski seek answers to these and other questions in their latest ebook. Learn about their predictions for 2025!

USA: Stability Amid High Interest Rates

The U.S. economy remains remarkably resilient. Official data shows that growth in Q3 2024 reached just under 3%. With Donald Trump confirmed as president for the next term, the shape of his economic policies will significantly influence future economic conditions.

According to Bloomberg surveys, U.S. GDP growth in 2025 is projected to be 2.1%, down from the 2.7% annual growth average in 2024. This is expected to decline further to 2% in 2026. While a recession will likely be avoided, a slowdown is inevitable due to high interest rates implemented between mid-2023 and September 2024.

Inflation in the U.S. saw a sharp decline throughout 2024, with the Fed's preferred inflation metric, the PCE index, dropping to 2.1% in September, only to rise slightly to 2.3% in October. Wage trends in the labor market will play a pivotal role in inflation in 2025, as wages are a significant cost factor in the service sector. Despite the low likelihood of a recession, the labor market is expected to remain robust, potentially slowing the decrease in wages and inflation. If we factor in Donald Trump's intentions (tariffs, immigration policy, lower taxes and a likely desire to interfere with Fed policy), the fight against inflation (considered by some to be won) may have to be renewed.

The Fed decisively began lowering interest rates in 2024, with one cut of 50 basis points and two cuts of 25 basis points, totaling a 1% reduction to 4.25-4.5%. Fed Chair Jerome Powell has suggested rates are nearing a neutral level, signaling that further adjustments will likely slow down.

Donald Trump’s Return to the White House

Trump’s second term promises regulatory changes that could ease pressure on the financial sector and spur stock market growth. However, risks tied to his policies and global economic challenges remain significant.

Record highs for the S&P 500 and Dow Jones Industrial Average reflect investor optimism and favorable political-economic conditions. Yet, this growth is not without risks. While Trump’s policies might boost markets, uncertainties surrounding tariffs, inflation, and national debt could lead to corrections. Investors will need to balance seizing current opportunities with safeguarding portfolios against sudden market changes.

Trump’s 2.0 administration mirrors many elements of his first term—protectionism, skepticism toward immigration, and unconventional approaches to alliances. However, key differences, particularly regarding new technologies, cryptocurrencies, healthcare policies, and the role of federal institutions, suggest potentially transformative reforms. These could redefine the U.S. and global political-economic landscape.

Eurozone: Economic Divergence and Monetary Policy Challenges

Recent official data revealed that the eurozone grew at a moderate pace in the third quarter, with a year-on-year rate of 0.9%. However, a closer look at individual countries shows a clear divergence in performance, with no signs of a broad-based recovery. Several key factors reinforce a negative outlook for Europe: weak demand from China and a trade war with the U.S. (tariffs on imported goods). Additionally, the public finances of certain nations (such as Italy and France) require urgent consolidation, which could further dampen sentiment.

On the positive side, the era of high interest rates in the eurozone is effectively over. Inflation trends are declining, providing room for further easing of monetary conditions. However, markets will closely monitor prices in the services sector, which, as in other economic centers, remain stubbornly persistent.

In December, the European Central Bank (ECB) enacted its fourth interest rate cut, this time by 25 basis points. Since the beginning of the easing cycle, rates have been reduced by a total of 125 basis points. Statements from the press conference and official communication suggest growing confidence within the ECB about achieving its 2% inflation target on a sustainable basis.

We anticipate that the ECB will continue along its current trajectory, reducing rates by 25 basis points at each meeting in 2025, reaching a 2% rate by mid-year. This outlook is supported by the likely continued decline in core inflation and economic weakness, which significantly limits companies' ability to raise prices.

China: Domestic Challenges and Global Trade Tensions

China is striving to accelerate economic growth after emerging from a prolonged pandemic slump, but results so far have fallen short of expectations. The third quarter of 2024 ended with a year-on-year growth rate of 4.6%, slightly slower than the 4.7% recorded in the second quarter.

China's economy relies heavily on exports, which are likely to face significant challenges in 2025 and beyond. These include new plans from Donald Trump (broad tariffs on goods) and Europe (levies on Chinese electric vehicles).

In December, the Central Economic Work Conference (CEWC) was held in Beijing, outlining new economic trends for 2025. Global investors are pinning their hopes on the conference, trusting that the authorities have a plan to address the structural problems that are becoming increasingly evident. The priority for the new year is to improve domestic consumption and demand. However, with the return of a Republican president in the U.S., these challenges may intensify. External pressures are now on par with internal economic struggles.

Microsoft and Micron: AI Driving Market Leaders

Tools such as OpenAI ChatGPT, natural language processing systems and image generators have revolutionized many sectors in recent years. One of the latest breakthroughs is OpenAI's introduction of Sora technology. Sora makes it possible to generate realistic video clips based on text commands, which could significantly impact the film and media industries.

The rising demand for artificial intelligence (AI) technologies is proving advantageous for Micron Technology, Inc., the largest U.S. producer of memory chips. On December 18, 2024, the company reported robust financial results for the most recent quarter. Earnings per share came in at $1.79, exceeding analysts' expectations of $1.76, while revenues matched market projections at $8.7 billion. However, projections for the upcoming quarter revealed a weaker sales outlook of $7.9 billion, significantly below the analysts' forecast of $8.9 billion. Company leadership attributed this decline to a sluggish PC replacement cycle and a slowdown in the automotive and industrial sectors.

Microsoft remains another major force in the AI market. The company has been making substantial investments in AI, particularly through its collaboration with OpenAI, the creator of ChatGPT. In the third quarter of 2024, Microsoft ramped up its capital expenditures, allocating a combined $62 billion (alongside other tech giants) to advancing AI technology. Despite growing investor interest and large-scale investments, profitability in the AI sector continues to be a challenge. Experts suggest that fully unlocking AI's potential may take decades and require significant shifts in organizational structures and workflows. Nevertheless, Microsoft remains committed to AI as a cornerstone of its strategic future.

Oil Prices: Global Demand and OPEC+ Decisions

The price of crude oil ended 2024 below the level at which it started in January, with a downward trend emerging in mid-April. The geopolitical tensions in the Middle East that dominated 2024 served only as temporary drivers of price increases, and no negative scenario materialized that could have led to a significant supply shortage.

One of the main factors influencing the price trend was the disappointing demand growth for crude oil in China. The recent three-month extension of OPEC+'s planned production increase has yet to support oil prices. The December decision was widely anticipated by the market, and prices fell even after the announcement. This can be attributed to the fact that the reversal of voluntary cuts amounting to 2.2 million barrels per day, planned to begin in April, will occur over a longer period than initially expected. Additionally, voluntary reductions of 1.65 million barrels per day, implemented in April 2023, were officially extended by another year, now lasting until the end of 2026.

In the first half of 2025, crude oil prices may face downward pressure due to persistently weaker demand (with Brent below $70 per barrel). However, in the medium and long term, cheaper oil could stimulate demand in Asian countries. Moreover, planned stimulus measures to support the Chinese economy are likely to boost prices in the second half of the year (with Brent potentially rising above $75 per barrel). Risks of higher prices remain tied to geopolitical tensions (in the Middle East) and U.S. sanctions targeting Iran and Venezuela.

Bitcoin: Records, Corrections, and Regulatory Hopes in the Trump Era

The year 2024 will be remembered in cryptocurrency history as a time of remarkable highs, sudden corrections, and significant shifts in U.S. policy toward digital assets. After reaching a record price of over $100,000, Bitcoin experienced sharp declines, and the market now awaits clear signals regarding regulations promised by President-elect Donald Trump. Meanwhile, the cryptocurrency sector is witnessing a surge of capital flowing into ETFs, increased involvement from financial institutions, and the growing influence of traditional market players (TradFi).

In his second term, Donald Trump promises a radical shift in the U.S. stance on cryptocurrencies. He has pledged to make the U.S. the "crypto capital of the world," restructure the SEC, and deregulate the industry, which became a significant source of support during his second campaign. The President-elect has announced plans for crypto-friendly regulations, including the creation of a national Bitcoin reserve and appointing crypto advocates to key positions in the White House. However, questions remain about the feasibility and sustainability of these promises.

For more investment forecasts for 2025, download OANDA's ebook.