The multipolar nature of international relations will “continue to steer economies in a context of strategic reshoring”, reads a 2025 outlook report by Julius Baer.
Governments, mindful of strategic vulnerabilities exposed by recent crises, have embraced proactive industrial and fiscal policies aimed at reshoring critical supply chains. These policies, visible through substantial spending programmes across the US, Europe and China, underscore a geopolitical pivot toward economic resilience.
Despite this, the new year looks to be driven by an innovation supercycle that extends the frontiers of artificial intelligence (AI) into new sectors and applications.
An unconventional chapter begins
Perhaps the most unexpected development lies in the US, where a second Trump administration signals a potential paradigm shift in economic policy. The appointment of libertarian-minded figures, such as Elon Musk and Vivek Ramaswamy to the newly created Department of Government Efficiency, reflects a commitment to small government and deregulation.
Although the effects of a second Trump-led presidency remains to be seen, the US remains the beacon of asset performance, according to Julius Baer. Since the start of the decade, American equities and alternative assets have delivered unrivaled returns, bolstered by the resilience of information technology giants.
See also: South Korea cuts growth forecasts after martial law fiasco
Once undervalued for their free cash flow generation, these companies now command valuations that reflect their robust growth trajectories.
Meanwhile, supply shocks, compounded by geopolitical rivalries, have replaced the peace dividend of previous decades. For investors, this new reality introduces heightened volatility, according to Julius Baer.
While government bonds offer initial allure amid declining long-term interest rates, equities remain the preferred asset class. Real assets, which have consistently outperformed nominal claims this decade, are poised to continue rising, says Julius Baer.
See also: ‘Great Monetary Expansion’, Trump 2.0 feature in StashAway’s 2025 outlook
With the push for strategic reshoring due to geopolitical complication comes the transformation of sectors deemed critical to national security, such as technology and energy. In the US, Julius Baer notes that manufacturing facility construction in electronics and computing have “increased sharply” in recent years.
Although these initiatives are not merely economic but also political, the broader global supply chain remains deeply interconnected, defying simplistic narratives of trade wars and decoupling.
Fiscal activities
The crises of the early 2020s, along with the Covid-19 pandemic and the war in Ukraine, have accelerated the embrace of fiscal activism in advanced economies.
Governments, particularly the US, have moved beyond cyclical stabilisation, deploying fiscal tools to address structural challenges such as inequality, ageing populations and stagnant growth, says Julius Baer.
The year 2024 marked a turning point in monetary policy. Central banks, having fought off post-pandemic inflation, began lowering policy rates. In the US, the Federal Reserve initiated an easing cycle, cutting rates by 75 basis points (bps) in the latter half of the year, with one more cut to come later today, or Dec 19 Singapore time.
Yet, the question remains: is the era of financial repression truly behind us, or will interest rates revert to historical norms?
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Presently, inflation has settled at a structurally higher average of 3%, reflecting what some analysts have termed a “conflict tax”.
Against the backdrop of US$315 trillion ($425 trillion) in global debt, higher interest rates pose a stark challenge. Refinancing costs have risen, threatening to strain both public and private balance sheets, warns Julius Baer.
“We maintain that ‘the tail is wagging the dog’, i.e. that financial assets have a disproportionate influence on the global economy, representing six times global gross domestic product (GDP).”
If anything, the past 12 months have confirmed the resilience of Western economies, particularly the US, to a normalised cost-of-capital environment.
“To the surprise of many, the US economy continues to expand, albeit at a slower pace than 12 months ago and with a cooling labour market,” concludes the report.
