Citi Strategists Warn of Geopolitical Discord Amidst Global Growth

In the face of a resilient global economy, Citi strategists have issued a cautionary note, warning investors of potential geopolitical discord that could disrupt market stability. Despite the global economy defying recession signals and corporate profits reaching new highs, the incoming Trump administration's policies may increase tensions both domestically and internationally.

Citi Wealth expects global GDP to rise at 2.9% in 2025 and 2026, up from 2.6% in 2024. Among advanced economies, the U.S. is projected to remain the primary engine of growth, with a revised forecast of 2.4% for 2025. However, the Trump administration's policies, such as swiftly imposed tariffs on imports from China and blanket tariffs on all other countries' imports, could lead to retaliatory measures and a potential trade war. This, in turn, could result in a shift in production and trade between countries, with some U.S. companies facing harsh retaliatory measures from China.



Moreover, Trump's policies, such as tariffs and tough action on illegal immigration, could raise goods prices and squeeze the supply of labor, leading to higher inflation. This could feed through into higher inflation, one of the primary issues of the campaign for voters across the country. Despite these risks, Citi Wealth expects U.S. core inflation to drop to 2% during the first half of next year thanks partly to the strong dollar and cheaper imports. The Fed may be able to cut policy rates, if more gradually, through the first half of 2025, with the Fed funds target range bottoming around 3.5%-4% in 2025.

Against this backdrop, Citi Wealth looks for further growth in corporate profits both in the U.S. and the rest of the world. However, investors should be prepared for greater market volatility as the Trump administration pursues policies that prioritize domestic activity and may stoke tensions internationally. To navigate these challenges, Citi Wealth advises investors to maintain core portfolios fully invested for the long term while being wary of over-concentrated portfolios. Diversifying into smaller-cap growth and international markets can help balance potential profit and risk.



In conclusion, while the global economy is expected to continue its rule-breaking expansion in 2025 and 2026, investors should be aware of the potential geopolitical and political discord that may pose risks to market stability. By staying the course, diversifying portfolios, and monitoring evolving risks, investors can position themselves to capitalize on the opportunities presented by the global economic growth while mitigating the risks associated with geopolitical tensions.