BBVA AM: “We anticipate a more open scenario in 2025, with room for favorable surprises in the markets”
The scenario for 2025 markets is positive, but not without uncertainty. According to forecasts by BBVA Asset Management & Global Wealth (BBVA AM&GW), the largest economies will see another year of growth, although conditioned by the policies adopted by the Trump administration. “As we look ahead to 2025, it is currently presenting significant uncertainty, but the ultimate outcome doesn’t necessarily have to be bad in terms of investments,” explained Joaquín García Huerga, Director of Global Strategy at BBVA AM & GW, at the presentation of the Market Outlook for 2025. “The markets continue to have revaluation potential and fixed income offers positive expected returns. Therefore, mixed portfolios, including conservative portfolios, could obtain positive returns in 2025 once again, both in nominal and real terms.”
“The word ‘uncertainty’ currently describes the forecast for the economy and the markets in 2025. And it goes both ways, which makes it difficult to adopt a firm optimistic or pessimistic stance,” said Joaquín García Huerga. “This means that the end result does not necessarily need to be negative, partly because the U.S. is in a position to surprise us on the upside once again with its economic growth.”
According to BBVA AM & GW, several fronts are subjected to opposing forces, with global economic growth being the most significant. Apart from the geopolitical risk, the greatest determinant will be the policies that the new Trump administration adopts. In the U.S., tax cuts and deregulation could increase economic growth, while tariff hikes and immigration restrictions could lead to higher inflation and less growth. The outcome could be favorable for growth and companies, but for now, BBVA AM&GW prefers to be cautious and set its 2025 GDP forecast for the main economies at or near their long-term growth potential rates.
The U.S. could grow two percent in 2025, slightly below the projected 2.7 percent growth, with which it would end the year in line with the BBVA AM’s forecasts. But if the measures adopted by the new administration do not undermine confidence or hinder international trade, this growth forecast could be conservative. Private consumption could experience a slight slowdown as a result of lower migratory flows, with 2.3 percent growth, while investment could remain at a notable 3.7 percent due to infrastructure and energy.
Meanwhile, the eurozone could experience slight GDP growth to one percent, up from the 0.8 percent where it will end 2024. “We expect to see a slight improvement in private consumption of up to 1.2 percent, thanks to the increase in real wages, a lower savings rate and a resilient labor market,” said Joaquín García Huerga. Investment growth is expected in the second half of the year, but unlike the U.S., the risk in the growth forecast for the eurozone carries a slight downward risk.
China will continue to experience a gradual reduction in growth, further weighed down by the real estate sector. BBVA AM & GW therefore predict 4.5 percent GDP growth in 2025. Meanwhile, several Latin American countries with overly lax fiscal policies in place may therefore see negative fiscal stimulus in 2025 with growth at a modest two percent.
Additional declines in inflation
Regarding inflation, the main driver for the economy and the markets over the past three years, forecasts point to additional declines in headline and core inflation in 2025 in nearly all countries, but with some caveats. “We’ve been talking for some time now about the risk of some structural inflation that could complicate a comfortable convergence to central bank targets. In addition, the new U.S. tariff policy could introduce further difficulties,” García Huerga added.
In fact, BBVA AM&GW forecasts for headline inflation in the U.S. are not as benign as they may seem, with an average forecast for the year and December of 2.4 percent. “While core inflation, which is truly the more uncomfortable aspect, would be slightly higher. While our eurozone forecasts also put average and December headline inflation at 2.4 percent, here we expect core inflation to converge at two percent in the second half of the year,” the strategist noted.
Therefore, this evolution in inflation would allow for more interest rate cuts in the U.S. and the eurozone, but also with caveats. The Fed must be somewhat cautious in this process, as inflation in the U.S. could remain above two percent throughout 2025. As a result, it could lower interest rates around 100 basis points from the current rate of 4.75 percent, while maintaining a restrictive monetary policy with a real policy rate at or above 1.5 percent. Meanwhile, the ECB appears to have a clearer path, with low growth and more controlled inflation. Its deposit rate could therefore reach two percent, down from the current rate of 3.25 percent.
Bright outlook for fixed income
With inflation under control and expectations of further declines in official interest rates, the outlook appears ideal for fixed income investments. “In 2025, we believe investors will once again benefit from positive returns through interest, combined with low risk and volatility, particularly compared to other asset classes,” explains García Huerga.
However, a potential risk for fixed income, and possibly for risk assets, may stem from the fiscal policy of some developed countries, including the United States, which continue to run high deficits alongside significant levels of public debt. This could lead markets to demand an additional risk or term premium, causing volatility at the longer end of yield curves, such as with 10-year bonds.
“Despite these concerns, we expect continued appeal for both developed and emerging market fixed income,” Huerga adds. Emerging markets, in particular, offer high yields, and many central banks in these regions are expected to continue lowering interest rates. At current levels, moreover, government bonds have the potential to serve as a hedge against risk assets in market downturns, especially where a downturn is triggered by concerns regarding economic growth, though not if more expansive fiscal policies further increase deficits.
“Credit remains attractive, and when assessing return versus risk, we continue to favor high-quality or investment-grade bonds over high-yield debt,” says García Huerga. “The main draw of the asset class lies in its absolute return potential, although from a valuation perspective (credit spread), it looks expensive compared to historical levels.”
It could be another good year for stock markets
The stock markets also hold promise in 2025, provided the asset manager’s estimates of earnings growth prove sound. For the U.S. stock market, a 9 percent earnings growth projection could sustain current valuations: this is demanding, but still realistic within a context of economic growth and declining interest rates.
In Europe, earnings growth is forecast at 5 percent for 2025, benefiting from an attractive valuation framework, especially as economic, geopolitical, and tariff uncertainties diminish.
“The Spanish stock market once again stands out in our predictions,” Huerga notes. “In addition to its compelling valuation—BBVA AM&GW’s estimated 2025 price-to-earnings ratio is 10.5x—it is expected to achieve 8 percent earnings growth, outpacing broader market expectations.”
Given the depth of geopolitical and economic uncertainty, however, García Huerga stresses the importance of staying flexible and adapting from moment to moment to what could remain a highly dynamic and unpredictable environment, particularly in Europe.
“In summary, while there is significant uncertainty surrounding 2025, the year’s investment outcomes need not be negative. Stock markets retain potential for revaluation, while fixed income is expected to deliver positive returns. As a result, mixed portfolios, even conservative ones, could achieve positive returns in 2025, both in nominal and real terms,” García Huerga concludes.