Goldman's 2025 outlook calls for more US outperformance after Trump win

Investing.com -- Goldman Sachs expects US outperformance to continue in 2025, bolstered by the policies expected under the newly elected Trump administration.

In a note released Thursday, Goldman strategists present a generally favorable outlook for global markets, with their baseline forecast implying “a benign risk backdrop and US outperformance.”

“We expect modest positive returns across equities, commodities, and DM bonds, alongside gradual USD appreciation,” strategists led by Jan Hatzius wrote.

“But markets have already moved a long way in a risk-positive direction, and it will be important to limit exposure to the tails around our baseline,” they added.

Goldman Sachs projects US economic growth at 2.5% for 2025, outpacing other developed markets (DMs) for the third consecutive year. The report attributes the positive outlook to expected Trump administration policies, including “higher China and auto tariffs, much lower immigration, some fresh tax cuts, and regulatory easing.”

These measures are likely to boost business sentiment and investment, although the potential for “a large across-the-board tariff” poses a significant downside risk.

In contrast, the Eurozone and China face more subdued outlooks. Goldman has cut its Euro area GDP forecast to 0.8%, citing structural headwinds and uncertainty over US trade policy. Similarly, China’s growth forecast has been reduced to 4.5%, reflecting the impact of higher US tariffs, partially offset by macroeconomic stimulus measures.

On inflation, Goldman expects US core PCE inflation to slow to 2.4% by late 2025, slightly above earlier projections. Yet, a broad tariff of 10% could push inflation up to around 3%.

Meanwhile, inflationary pressures in Europe and Japan are anticipated to remain muted, contributing to the broader global disinflation trend.

According to Goldman's note, a broader trade war, would support the US dollar but weigh on global equities.

“Unusually high US equity valuations not only dampen long-term expected returns but also amplify the potential reaction to any economic weakness,” strategists continued.

On the other hand, positive tailwinds could develop if policies become more corporate-friendly, oil prices decline significantly due to excess capacity, or concerns over inflation and fiscal issues turn out to be overstated.