In Europe, Germany, the region’s largest economy, is under significant pressure. High energy prices, geopolitical tensions, and potential trade disruptions with the US and China are weighing heavily on its industrial sector, heightening fears of a slowdown.
The UK is on the brink of recession, with revised GDP figures showing zero growth in the third quarter of 2024, signaling stagnation.
Also Read: Macquarie warns of likely 10% drop in Indian markets in 2025
Japan, world’s third-largest economy, also unexpectedly slipped into recession earlier this year, driven by weak domestic demand. Average household debt in Japan rose to ¥6.55 million in 2023, exceeding average incomes, forcing many households to turn to loans with high interest rates.
New Zealand also entered a recession, with its GDP contracting by 1% in the July-September quarter, following a revised 1.1% decline in April-June. This six-month contraction marks New Zealand’s weakest economic performance since 1991, outside of the COVID-19 pandemic, according to Kiwibank Economics.
Also Read: Bankruptcies rise as Japanese struggle with mounting debt
In contrast, the US economy remains resilient. Goldman Sachs recently lowered the probability of a US recession in the next 12 months to 15%, down from an earlier forecast of 20%, citing a resilient job market.
This aligns with the long-term average probability of 15%, noted Jan Hatzius, Chief Economist and Head of Goldman Sachs Research, in the team’s report.
“There’s no sign of a recession. If markets and the economy are doing well, you might get some stress in pricing, leading to inflation,” said Bhaskar Laxminarayan of Julius Baer, suggesting that inflation, not recession, may be a bigger concern in the US.
However, the strength of the US dollar, driven by capital flows from emerging markets, has created significant headwinds for countries in Asia, excluding Japan, according to Rajeev Agrawal of Doordarshi India Fund.
Also Read: Mark Matthews on why US market could dip 20% in 2025
Adding to the uncertainty, Sudip Bandopadhyay of Inditrade Capital expects market volatility as President-elect Donald Trump plans to introduce a new tariff regime after his inauguration in January 2025.
These policies could disrupt global trade further, compounding economic pressures.
Geopolitical tensions continue to pose substantial risks. Ongoing conflicts in Ukraine and the Middle East, along with political gridlock in major European economies like Germany and France, contribute to economic instability.
Mark Matthews of Bank Julius Baer highlighted the inherent difficulty of predicting recessions due to the complexity of economic systems. “Recessions are impossible to predict. Economists who forecast them are just lucky, that’s all,” he said.
Also Read | UBS believes Indian property market is far from the peak
While signs of strain in global economies and financial markets point to potential risks in 2025, some analysts maintain an optimistic outlook.
JP Morgan, for instance, estimates only a 15% probability of a global recession in the first half of 2025, suggesting that while risks are present, a downturn is not imminent.
