Geopolitical Events, BRICs Rise to Dictate 2025 Economic Growth

On Wednesday 26 February 2025, the Luxembourg Chamber of Commerce hosted an event on economic forecasting entitled "Where is the economy headed in 2025?"

Mozamil (Moz) Afzal, Global CIO and CEO of EFG Asset Management of EFG International, revealed his vision of the markets for 2025 and presented EFG's top 10 themes for the year ahead.

He explained that, for almost fifteen years, EFG has been presenting an "honest view" / "simple view" unlike others who may "present complex pictures", by combining six valuation models (without weighting) and presenting the results simply.

In essence, a review of EFG's Top 10 predictions for 2024 revealed:

1. World economy has a soft landing - correct
2. Productivity gains - correct
3. Fiscal fragility - correct
4. Political turbulence - correct
5. Demographics is (still) destiny - correct
6. Weight loss and consumer staples - partly correct
7. Clean energy transition - partly correct
8. Undervalued currencies recover - incorrect
9. Bond opportunities - correct
10. Favour small cap stocks - incorrect

He said that nowadays people's expectations are more realistic than before, China and Japan outperformed predictions and gold was up over 20%.

Looking ahead, he presented an outlook on global economic and policy trends stated that 2025 has seen a "pretty good start to the year": Hong Kong is very strong in terms of market performances; European equities are doing well; bonds have started the year well (up 1.6%); he revealed that they use Google search trends and machine learning, splitting between "macro" and "thematic"; he stated that "nobody cares" (now) whether there are big trends, recession / inflation, etc.; he revealed there is a big rise in BRICs, and GLP-1 (weight loss drugs) outscoring AI, etc. He confirmed that many more manufacturers are coming on the market, resulting in knock-on effects in other areas such as food and drinks manufacturers as shopping baskets become lighter. Technology has become expensive.

He also explained that earnings growth is set to rise in 2025, based on high valuation but with earnings growth, with around 13% projected for equities in both 2025 and 2026, with stronger growth in the US than elsewhere. He advocated diversification over multiple sectors.

1. World economy: he said that the global economy remains resilient despite headwinds (trade disruption; continued problems in China; high government debt and deficits). He stated that uncertainties should ease in 2025 Q2 into 2026, and the impact of previous rate cuts should start to take effect. On the issue of the impact of Trump's tariffs, he said that they will most likely be most strongly felt in China and the US, therefore being negative for the US and global GDP. He also said that Germany should see a loosening of their (restrictive) fiscal policies. He also mentioned US DOGE targeted cost savings, with uncertainty still hanging over what will happen (see #4 below).

2. On BRICs, now representing 45% of the world's population, Indonesia has become its 10th member, with another two expected to join in 2025, meaning that the BRICs group will create half the world's growth in 2025 and will become less dependent on western economies. "This is a good counter-balance to the US economy" and "weakens Trump's position", he claimed in what he described as a change in the world order, with more cooperation within the BRICs group predicted.

3. On policy shifts, he said that he sees a focus from inflation to employment, with a lag of twelve months, with the battle against inflation largely won outside the US, with a move to job creation.

4. On government deficits, world public debt continues to rise - he said it went up due to COVID and now is pay-back time. He argued for 3% inflation and 3% GDP which he said Trump would be happy with; on the DOGE lay-off impacts, he said that Trump is claiming that "private companies can run government better than government can run government". Looking at revenues and expenditures to date, he said that "Musk and Co." in the US are saying that if one can reduce expenditures to 2019 levels and keep revenues as they are, then one get a $500 million surplus. If this playbook is successful, he said that then possibly the UK may be the next country to adopt this tactic/policy.

5. On innovation and change, he talked about AI going mainstream ("the uptake of generative AI has been faster than when the Internet was founded") and stated that if development has peaked, then there is no point in investing in European AI companies, with the US leading Europe and China.

6. Nuclear power renaissance: he said that there is a global surge in electricity demand due to the electrification of housing, transport and industry, data centres and cryptocurrencies. H stated that as the US does not currently figure in nuclear power electricity generation, they "need to hurry up if they want to catch up the rest of the world" in autonomous driving and many other sectors.

7. On equity and bond market opportunities, he expects that corporate earnings will continue to drive markets higher, with strong corporate earnings growth. He added that earnings have been broadly in line with expectations over the past two years, with the S&P 500 showing 20% gains in the last two years; current market expectations are for 10% earnings growth in 2025.

8. Market concentration - he said that the Top 10 companies in the US market (SP&P 500 index) currently account for 35% of its market capitalisation, with such a level of concentration not been seen since the end of 1962. He described this as a "relative danger".

9. Consumer discretionary sector: he said that valuations here are relatively cheaper in the US, and even cheaper outside the US. He explained that there is a change in the structure of people's wealth and gave the example of business class airline seats now becoming full again.

10. He said that the Yield Curve is steepening, with an interesting range of opportunities in the fixed income market.

ED