The political unknowns (Ukraine, Middle East, Syria) remain so even though there have recently been signs of concrete attempts at peace, especially with regard to the ongoing negotiations between Israel and Hamas.
Indeed, the year 2025 could be characterized by the search for new international balances with ongoing assessments of what role the European Union could acquire in the face of a possible U.S.-China economic confrontation. For the EU, the pillars of development have long been energy, defense, and technological innovation in addition to the acceptance of the realization that in the face of giant financial markets that will face each other globally (U.S.-China), the only chance for autonomy lies in a strong and cohesive Union.
Trump could probably try to approach NATO countries individually, precisely to undermine European cohesion, and this possibility will be a very important focus of attention in the year to come, not least because upcoming votes, for example in Germany, could create further political turmoil after those that have already emerged first in Spain and then in France.
Even Trump’s recent statements on Canada and Greenland (the tycoon reportedly expressed a desire to annex the two countries using force if necessary) would seem to be more part of a propaganda context than a real expansionist desire, which moreover would violate international law, but could still be enough to destabilize the international framework if repeated.
India appears to be increasingly strong and growing (+ 6% GDP) with a very dynamic economy and is now an effective regional competitor to China, now with an established international dimension taking into account that the Indian stock exchange has even larger volumes than those of Europe and the United States, as well as a significant number of IPOs in 2024 testifying to the growing interest of savers.
On the monetary side, the FED has reportedly announced only two cuts in 2025 (fewer than previously planned), while the ECB has planned to follow up, with four cuts planned by the end of the year, and this could constitute a possible further spread in the cost of money between the United States and the European Union. One of the main reasons for this change in strategy is that theU.S. economy appears to be growing strongly, while the Europeaneconomy is still unresponsive.
In 2025 we will be able to assess the first applications of artificial intelligence in the various economic and social sectors, which are then expected to develop significantly in 2026. This technological paradigm shift also has unknowns related to the actual impact on production chains in terms of outcomes, the real effects in terms of employment and ultimately also the real governability of this technology.
1. Financial markets
The need to create a cohesive European framework is in part aided by the openness also of Northern European countries to the issuance of Eurobonds and the increase in defense budgets: in fact, these are precisely the main points of Draghi’s plan for the revitalization of the European Union, which would involve total public spending of about 800 billion annually. Achieving these goals will require achieving Banking Union, Market Union, an unambiguous solution for banks in crisis, and European deposit insurance. All of which are not easy solutions.
U.S. markets now have stock prices that have very high multiples but still still commensurate with corporate earnings, which are growing strongly in essentially all sectors. Of course, in the current sensitive environment, it could take only a negative or mismatched quarterly earnings report to change the overall picture and trigger a reflexive or downward price trend.
Even though bonds have depreciated in the past two weeks (especially U.S. and British bonds), with rising yields, central banks will continue the policies they have initiated, ECB above all, which will tend to arrive during 2025 at a rate of around 1.5-2%, while for the FED the continuation in lowering rates does not appear to be a foregone conclusion especially if the real economy continues to show solid indices.
In this scenario for possible transactions in Government Securities, 3-7 year maturities should be preferred over longer term maturities, which may have unknowns related to possible changes in taxation.
As far as the most interesting economic sectors are concerned, infrastructure and renewable energy, both of which are subject to AI’s planned integrations, defense, and commodities (oil, gold and copper above all) certainly stand out.
In Italy, inflation has risen to 1.3 percent year-on-year with average growth in 2024 of 1 percent, positive elements that add to the fact that the descent of the spread brings increasing benefits on government interest expenditure that are expected to be significantly lower than forecast in the last quarter of 2024.
Obviously, these positive elements will have a significant impact if on the productivity side the Italian economy is active and growing in the coming months with positive and increasing results on GDP.
2. Main indexes
European markets are up and are now close to their highs, while U.S. markets have retraced in the first two weeks of the new year.
The Nikkei was slightly sagging while eastern markets have started a recovery trend after the obvious weakness shown in the last period.
3. Currencies
The dollar and other currencies in the area have appreciated against the euro over the past month, the Mexican peso has moved sideways while the South African rand has depreciated slightly.
Preliminarily, it is worth noting that, with the data of the last week, in fact, current prices have almost entirely erased the rally related to Trump’s election and the dollar is almost at its 2022 highs.
