Investment and economic outlook

Share this article:

latest forecasts for investment returns and region-by-region economic outlook.

.

Vanguard’s outlook for financial markets

We have updated our forecasts for the performance of major asset classes, based on the 8 November, 2024, running of the Vanguard Capital Markets Model®. Equity returns reflect a range of 2 percentage points around the 50th percentile of the distribution of probable outcomes. Fixed income returns reflect a 1-point range around the 50th percentile. More extreme returns are possible.

 

Region-by-region outlook

The views are those of the global economics and markets team of Vanguard Investment Strategy Group as of 4 December, 2024.

 

Australia

An economy poised to recover in 2025 nonetheless continues to face sticky inflation and stagnant productivity.

We expect:

  • Full-year 2025 GDP growth of around 2%, underpinned by rising real household incomes, a rebounding housing market and rate-cut expectations.
  • Given low productivity growth and its resulting higher unit labour costs, we don’t foresee headline or core inflation falling sustainably to the midpoint of the RBA’s 2%–3% target range until 2025.
  • The Reserve Bank of Australia to begin an easing cycle in the second quarter of 2025, and to cut rates at a gradual pace.
  • The unemployment rate to rise to around 4.6% in 2025.

America

The U.S. economy has achieved a favourable balance of strong GDP growth, low unemployment, and cooling inflation. We attribute this confluence to recent supply dynamics—labour force and productivity growth—that have shaped the economic landscape over the past two years.

We expect:

  • Another cut to the Fed’s target for short-term rates on 18 December, 2024, putting its policy rate at 4.25%–4.5% for year-end. We anticipate the Fed will reduce its rate target further in 2025 to a range of 3.75%–4%. Cuts beyond that would prove difficult as any weakening in growth would have to be weighed against a potential inflation revival.
  • Full-year 2024 GDP growth of around 2.3%, with growth remaining above 2% in 2025.
  • Inflation (core PCE) rising to 2.9% by year-end because of challenging comparisons with year-earlier data but falling to 2.5% by the end of 2025.

The unemployment rate increasing marginally in 2025 to around the mid-4% range.

United Kingdom

The U.K. economy recovered in 2024, but growth has been uninspiring, and productivity has been weak. We expect growth to accelerate above trend, driven by fiscal stimulus, in 2025.

We expect:

  • Much of the spending in the autumn budget announced in October 2024 to be realised in 2025 and 2026, setting the stage for GDP growth of around 1.4% in 2025.
  • Subdued progress on inflation, with core inflation falling to a 2.4% pace by the end of 2025. Services inflation remains elevated and is more stubborn, and fiscal easing would be expected to support demand.
  • The Bank of England to leave its policy rate at 4.75% in December, followed by quarterly cuts next year that reduce it to 3.75% by year-end 2025.
  • The unemployment rate to be 4%–4.5% at the end of 2024 and to finish 2025 toward the upper end of the same range.

 

Euro area

The euro area economy has struggled amid a deep downturn in manufacturing and restrictive monetary and fiscal policies weighing on services demand. In 2025, we expect growth to remain below trend and the European Central Bank (ECB) to cut rates below neutral.

We expect:

  • The ECB to cut its policy rate to 1.75% by the end of 2025, although an intensification of trade tensions and a significant slowdown in global growth would each likely result in a more dovish monetary policy stance.
  • GDP growth of around 0.5% in 2025, with a potential slowdown in global trade representing a key risk. Manufacturing faces headwinds from the lingering effects of the energy crisis and from weakening external demand. Restrictive fiscal and monetary policies are slowing the services sector.
  • Headline and core inflation to end 2025 below 2%.
  • The unemployment rate to rise to the high-6% range through 2025 given the pronounced slowdown in Germany and broader growth pressures.

 

Japan

After decades of economic and market stagnation, Japan may be on the path of a sustainable rebound, as this recent article in our econ and markets hub discusses.

We expect:

  • Above-trend GDP growth at around 1.2%, with the driver shifting from exports to a pickup in domestic demand. Risks from the global economy may increase uncertainty, with potential U.S. tariffs offsetting China’s policy stimulus, though the overall impact for Japan is likely to be limited.
  • The Bank of Japan to raise its policy rate to 1% by the end of 2025.
  • Steady wage growth on the back of strong corporate profits and structural labour shortages, which will likely support a recovery in domestic consumption and keep core inflation robust at around 2% in 2025.

 

China

China’s economy has regained some ground, buoyed by improved domestic demand on the strength of recent fiscal stimulus. The outlook for 2025 will hinge on the degree of policy support and potential U.S. tariff increases.

We expect:

  • Full-year GDP growth to decelerate in 2025 to around 4.5%, which would be below the government’s 5% target of recent years. Growth momentum should improve in the coming months, but structural and external headwinds will persist, including a prolonged housing downturn, deepening supply-demand imbalances, and global trade developments.
  • The People’s Bank of China to allow for some currency depreciation in 2025.
  • Core inflation of around 1.5% in 2025, with only a modest inflationary thrust from currency depreciation in the face of higher tariffs.
  • The unemployment rate to remain around 5% in 2025.

 

Canada

We foresee softer growth and continued Bank of Canada (BOC) rate cuts amid monetary policy that remains restrictive and a slowing pace of inflation.

We expect:

  • The BOC to continue easing monetary policy in 2025, though we expect rates to settle higher than in the pre-pandemic period. We expect a terminal rate around 2.5%,
  • GDP growth to remain below 2% in 2025 despite monetary policy that we anticipate will turn accommodative.
  • Core inflation ending 2024 in a year-over-year range of 2.1%–2.4% and remaining in that range in 2025, just above the midpoint of the BOC’s 1%–3% target.
  • The unemployment rate rising to the high-6% range in 2025 as the economy grows below its potential.
    Emerging markets

In many emerging markets, proactive policymaking has led to significant progress in reducing inflation. Indeed, most central banks in these markets felt comfortable enough to start easing policy from restrictive levels ahead of their developed markets counterparts. In 2025, we expect the easing cycle across emerging markets to both continue and broaden, with rates remaining in restrictive territory.

The central bank in Brazil raised its policy Selic rate again in November to 11.25%, accelerating the pace of its rate increases amid renewed inflationary pressures. Year-over-year headline inflation jumped to 4.76% in October, above the upper end of a 1.5-percentage-point tolerance band around the bank’s 3% inflation target.

The economy in Mexico surged in the third quarter, but restrictive interest rates and U.S.-related policy uncertainty make us bearish on Mexico, where we expect growth in a range of 1.25%–1.75% in 2025.The pace of core inflation, which excludes volatile food and energy prices, fell for a 21st straight month, to 3.8% year over year. We expect core inflation to fall to 3.25%–3.5% in 2025, above the midpoint of the 2%–4% target range set by the Bank of Mexico.

 

Notes: All investing is subject to risk, including the possible loss of the money you invest.

Investments in bonds are subject to interest rate, credit, and inflation risk.

Investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.

IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time.

The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.

This article contains certain 'forward looking' statements. Forward looking statements, opinions and estimates provided in this article are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Forward-looking statements including projections, indications or guidance on future earnings or financial position and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. There can be no assurance that actual outcomes will not differ materially from these statements. To the full extent permitted by law, Vanguard Investments Australia Ltd (ABN 72 072 881 086 AFSL 227263) and its directors, officers, employees, advisers, agents and intermediaries disclaim any obligation or undertaking to release any updates or revisions to the information to reflect any change in expectations or assumptions.

© 2024 Vanguard Investments Australia Ltd. All rights reserved.

 

 

 

 

By Vanguard
18 December 2025
vanguard.com.au

 

Want to know more?

Do you have a question about something you've read in this article? Need more information? Want to book an appointment? Simply let us know below and we'll get back to you ASAP.

Share this article:

Get in touch

logo

General Advice Disclaimer | Privacy Policy

Contact Us

General Disclaimer

The information contained on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.

Dr John Tickell is a registered Medical Doctor, who graduated at the University of Melbourne, Australia. Dr John has spent several decades travelling and researching the eating and living habits of the longest living, healthiest people on our planet.

The author may give opinions and make general or particular statements in this literature regarding potential changes of lifestyle habits based on experience and research. You are strongly advised not to make any changes or take any action as a result of reading or listening to this material without specific advice from your doctor, physician or registered Health Professional.

The author, the Publisher, the Editor and their respective employees or agents do not accept any responsibility for the actions of any person, or injury, loss or damage occasioned - actions which are in any way related to information contained herein.

Opinions and statements in this literature are based on verified research and experiences by the authors and are to be regarded as health and wellness advice.

Privacy Policy

What Personal Information Do We Collect?

The personal information that we collect will depend on your relationship with us and the service(s) you or your organisation have engaged us to provide or are interested in. It may include:

Name and contact information (including telephone and mobile number, email address and residential and postal address);

Individual information (including racial or ethnic origin(s), language(s) spoken, religious belief(s) and affiliation(s), date of birth, age, place of birth, gender(s), occupation(s), employment and qualification details, financial records, income details, asset listings, taxation records, bank account details, insurance policies, medical history, disability status, criminal record and Court records);

Payment and transactional information (including banking and credit card details);

Other personal or sensitive information (including information contained in communications or documents, any information required due to the nature of your matter, or information we are required to or permitted to collect by law).

Collecting Personal Information

HOW WE COLLECT PERSONAL INFORMATION

We may collect your personal information directly from you or in the course of our dealings with you. For example, we collect personal information from you or about you from:

Correspondence between you and us;

Meetings and interviews with us, telephone calls with us, the instructions you provide to us;

Visits to and submissions you make on our website;

Your interactions with our electronic direct mail and/or emails from our marketing campaigns (such as clicks on links included in these emails); and

Registration and forms you may fill in for our marketing-related activities and events.

WHY WE COLLECT, HOLD AND USE PERSONAL INFORMATION

We collect and hold your personal information for a variety of purposes, and you permit us to use it:

To provide you with our services and carry out our business functions;

For purposes related to the provision of our services such as , educational briefings, seminars and coaching and other service offering updates, conducting client satisfaction surveys and feedback requests, statistical collation and website traffic analysis;

Where you have consented to its use or disclosure;

Where we reasonably believe that use or disclosure is necessary to lessen or prevent a serious, immediate threat to someone's health or safety or the public's health or safety;

Where we reasonably suspect that unlawful activity has been, is being or may be engaged in and the use or disclosure is a necessary part of our investigation or in reporting the matter to the relevant authorities;

Where such use or disclosure is required under or authorised by law (for example, to comply with a subpoena, a warrant or other order of a court or legal process);

Where we reasonably believe that use or disclosure is necessary for the prevention, investigation, prosecution and punishment of crimes or wrongdoings or the preparation for, or conduct of, proceedings before any court or tribunal (or the implementation of orders of a court or tribunal or on behalf of an enforcement body);

To develop and improve our business, products and services; and

For any lawful purpose.

Where we wish to use or disclose your personal information for other purposes, we will obtain your consent.

HOW WE HOLD AND STORE PERSONAL INFORMATION

Your personal information is held and stored on paper, by electronic means or both. We have physical, electronic and procedural safeguards in place for personal information and take reasonable steps to ensure that your personal information is protected from misuse, interference, loss and unauthorised access, modification and disclosure:

Data held and stored on paper is stored in a secure premises.

Data held and stored electronically is protected by internal and external firewalls, high encryption and all access to electronic data including databases requires password access

Access to personal information is restricted to staff and contractors whose job description requires access. Our employees and contractors are contractually obliged to maintain the confidentiality of any personal information held by us.

We undertake regular data backups, with the data copied and backed up to multiple locations for redundancy purposes.

Our staff receive regular training on privacy procedures.