### United States
As the year turns, the driving forces behind the business and investment climate remain largely familiar, centered around the robust performance of the US economy. Powered by historically significant budget deficits, gains in productivity, and consumer spending, the US economy has been outperforming its counterparts. The budget deficit stands at about 7% of GDP in 2024, expected to decrease slightly to 6.5% in 2025, according to the Congressional Budget Office. Despite these challenges, the economy is experiencing above-trend growth.
The incoming administration, under President-elect Trump, has already begun to make waves with tariff threats and international disputes involving the Panama Canal and Greenland, signaling a more protectionist stance. The Federal Reserve’s monetary policy saw a shift with a 50 bp cut in late September, suggesting more caution about the labor market, though it did pivot back to focus on price stability later in the year. Additionally, the dollar made significant gains in the last quarter, driven by the divergence in monetary policy expectations globally.
### Eurozone
The eurozone’s recovery from past financial crises has been slow, taking a hit from the pandemic and Russia’s ongoing conflicts in Ukraine. The absence of full monetary and fiscal integration continues to challenge the region in overcoming economic hurdles. Political instability in key countries like France and Germany further complicates matters. Despite weak economic growth, most eurozone members are working towards fiscal consolidation, aiming for a collective budget deficit of about 2.9% in 2025.
The euro ended 2024 virtually unchanged from its lowest settlement of the year. Economic divergences with the US are evident, with the eurozone facing weak growth prospects, political instability, and new tariff threats from the incoming US administration. The region’s reliance on trade surpluses with the US could fuel transatlantic tensions, further impacting the euro’s trajectory against the dollar in the coming months.
### United Kingdom
The British economy remains under pressure as the pound experienced a 1.7% depreciation against the dollar in 2024. While the Bank of England began easing monetary policy with two-quarter point cuts in August, further rate reductions are anticipated in 2025. Economic stagnation and political turmoil—including the rise of Farage’s Reform Party—add to the pressure on the sterling, which is expected to face further challenges against the dollar as economic conditions evolve.
### China
China faced a challenging year with subdued economic performance, marked by low inflation and declining property prices. While Beijing has intensified efforts to stabilize the property sector, deflationary pressures continue to impact the economy. The country’s export sector remains a critical focus, complicated by international tensions and the broader narrative of de-risking from Chinese reliance. In trade policy, China is preparing for a new era of competition with the US, removing tariffs for the poorest countries and ending tax subsidies for exporters.
### Japan
Japan managed a modest economic expansion of approximately 0.6% in 2024, with anticipation of improved growth in 2025. The Bank of Japan increased interest rates out of negative territory, yet market expectations suggest caution about further hikes in early 2025. While Japan shows commitment to monetary policy normalization, the economy remains sensitive to external factors, particularly shifts in US Treasury yields.
### Canada
Canada faced both political and economic challenges, highlighted by significant interest rate cuts totaling 175 bp in 2024. The Liberal government’s weakening position has set the stage for potential political shifts with upcoming elections. The Canadian dollar depreciated by 8% against the US dollar through the year amid this uncertainty and potential US tariffs impacting trade.
### Australia
Despite the Reserve Bank of Australia maintaining steady rates through 2024, the Australian dollar depreciated over 9%. Economic slowdown and moderating inflation are set to prompt rate cuts in 2025, with market predictions suggesting approximately 80 bp of easing. The local currency remains under pressure, especially with potential further rate reductions on the horizon.
### Mexico
Mexico’s peso suffered after the national elections in July 2024 and has yet to regain favor among investors. Amid tariff threats from the incoming US administration, the central bank pursued rate cuts, reducing the interest rate to 10%. Prospects suggest room for further easing in 2025. Looking forward, the peso faces the risk of significant disruption given pressures surrounding the USMCA treaty and overall economic ties with the US.
