Goldman Sachs Sees Solid Global Economic Growth in 2025

Goldman Sachs, a leading global financial institution, has recently released its economic outlook for 2025, projecting a solid year of global economic growth. The firm's economists anticipate a robust expansion of worldwide GDP, with the US outperforming other developed economies. This positive outlook has significant implications for investment decisions and portfolio composition.

Goldman Sachs Research forecasts another solid year of global economic growth in 2025, with worldwide GDP expanding 2.7% on an annual average basis. The US is projected to grow at 2.5%, well ahead of the consensus at 1.9%. In contrast, the euro area economy is expected to expand at a slower pace of 0.8%, compared to the consensus of 1.2%. This disparity in growth rates suggests a higher allocation to US equities, given their potential for stronger earnings growth.

The firm's bullish outlook is driven by several key factors. Firstly, the US is expected to outperform other big economies due to stronger labor productivity growth. US labor productivity has increased at a 1.7% annualized rate since late 2019, a clear acceleration from the pre-pandemic trend of 1.3%. By contrast, labor productivity in the euro area has grown at a 0.2% annualized rate over the same period, a clear deceleration from 0.7% before the pandemic.



Secondly, Goldman Sachs anticipates a rebalancing of global labor markets, with inflation continuing to trend down and central banks well into the process of cutting interest rates back to more normal levels. This supportive monetary policy environment is expected to boost economic growth and risk assets, particularly equities.

Lastly, the firm expects the US Federal Reserve to cut its policy rate to 3.25-3.5% by late 2025, which could further boost US stocks. The European Central Bank, meanwhile, is expected to lower its policy rate to a terminal rate of 1.75%. This accommodative monetary policy stance is likely to support economic growth and risk assets.

However, Goldman Sachs also warns about potential risks, such as a large across-the-board tariff, which could hit growth hard. Therefore, a balanced portfolio approach, combining growth and value stocks, may be prudent to navigate potential challenges and capitalize on opportunities in various sectors.

In conclusion, Goldman Sachs' expectation of solid global economic growth in 2025, driven by US outperformance and euro area lagging amid fresh tariffs, influences its investment decisions. The firm's bullish outlook on the US economy and the global economy has significant implications for portfolio composition and asset allocation. By adopting a balanced portfolio approach and remaining diversified across regions and asset classes, investors can position themselves to benefit from the projected economic growth while managing risks and capturing opportunities in other markets.