As we approach 2025, the US economic outlook is showing robust growth. With President-elect Donald Trump at the helm, outlining a series of policy initiatives throughout his campaign, expectations are high that the economy will continue to surpass forecasts. Concerns about a recession are easing, inflation is stabilizing around 2%, and the job market is steady.

Experts at Goldman Sachs Research anticipate the GDP will grow by 2.5% over the year, outpacing the 1.9% growth predicted by economists polled by Bloomberg.

Key Takeaways

• Expected Economic Growth: The U.S. economy is projected to grow by 2.5% in 2025, surpassing the 1.9% consensus forecast. This growth is supported by stabilizing inflation around the Federal Reserve’s 2% target and a strong job market.
• Policy Changes Under New Administration: Anticipated shifts include increased tariffs, tightened immigration policies, and extended tax cuts. These changes could boost economic activity and pose inflationary risks and potential impacts on GDP.
• Labor Market Strength: A robust job market, characterized by low unemployment and steady growth, is crucial for maintaining consumer confidence and spending. However, reduced immigration may affect labor supply dynamics.
• Potential Risks and Challenges: While the outlook is positive, uncertainties remain. Increased tariffs could raise inflation, and fiscal concerns persist due to a high debt-to-GDP ratio. Despite the optimistic forecast, businesses and investors should be cautious of potential economic headwinds.

US Economic Outlook for 2025: Strong Growth, Policy Shifts, and Market Trends

Looking ahead to 2025, the U.S. economy is expected to exceed expectations, with Goldman Sachs Research forecasting a 2.5% growth in the gross domestic product (GDP) for the full year. This projection exceeds the 1.9% growth consensus among economists surveyed by Bloomberg.

David Mericle, the chief U.S. economist at Goldman Sachs Research, shared some positive insights. “The U.S. economy is in a good place,” he noted in a recent company release. The economic outlook remains promising, with reduced concerns about a recession, inflation moving back towards the 2% target, and a strong, well-balanced labor market.

Heading into a new phase, the U.S. economy is showing signs of solid performance, strengthened by several key factors:

• Stabilizing Economic Conditions: Fears of a recession are subsiding, with inflation gradually aligning with the Federal Reserve’s target of 2%. Goldman Sachs Research estimates a 15% likelihood of a U.S. recession occurring within the next 12 months, which aligns closely with historical averages. This positive trend is restoring confidence among consumers and businesses, sparking increased spending and investment.

• A Strong Labor Market: The job market remains robust, characterized by low unemployment and consistent job growth. This stability is crucial in sustaining consumer spending and is essential for ongoing economic expansion.

• Anticipated Policy Shifts with the New Administration: With the recent Republican victories in Washington, significant policy shifts are expected:

• Tariff Adjustments: Plans are underway to increase tariffs on imports from China and automobiles, potentially raising the effective tariff rate by 3 to 4 percentage points.
  • Immigration Policies: The proposed tightening of immigration policies could reduce annual net immigration to 750,000, down from the pre-pandemic average of 1 million.
  • Tax Legislation: The administration aims to extend the 2017 tax cuts and introduce modest additional reductions, which could further invigorate economic activity.

David Mericle noted that changes in economic indicators might first become evident in inflation metrics. Wage pressures are easing, and inflation expectations have normalized. Any persistent high inflation is likely just catching up from previous lags.

Goldman Sachs Research projects that by the end of 2025, core personal consumption expenditure (PCE) inflation, which excludes tariff effects, will decrease to 2.1%. However, tariffs could temporarily raise this inflation measure to 2.4% as a one-time effect.

From past analyses during the first Trump administration, the economists at Goldman Sachs have observed that each one-percentage point increase in the effective tariff rate tends to lift core PCE prices by 0.1 percentage points.

David Mericle comments that although definitive signs of labor market stabilization are still forthcoming, the current pace of job growth seems robust enough to gradually reduce the unemployment rate, especially as immigration rates decline.

The U.S. stock market has shown remarkable resilience, with the S&P 500 climbing over 24% in 2024, driven mainly by strong performance in the technology sector. Analysts are optimistic that this momentum will continue into 2025, with large-cap U.S. stocks potentially delivering total returns exceeding 25% for a second consecutive year.

Consumer confidence has surged to a 16-month peak. This sentiment is reflected in the Conference Board’s consumer confidence index, which rose to 111.7 in November from 109.6 in October, signaling a positive economic outlook for the coming year.

Internationally, the global economy is expected to experience solid growth in 2025 despite ongoing trade tensions. U.S. trade policies, including increased tariffs, are anticipated to have a mixed impact, potentially reducing U.S. GDP by 0.3% but impacting the euro area by up to 0.9%.

Despite a generally positive forecast, significant policy uncertainties remain. A proposed 10% universal tariff, significantly larger than the China-specific tariffs that unsettled markets in 2019, could drive inflation above 3% and negatively affect GDP growth.

Additionally, there are growing concerns about fiscal sustainability. According to the report from Goldman Sachs Research, the debt-to-GDP ratio is approaching historic highs, there is a significantly wider deficit than typical, and real interest rates exceeding previous forecasts could heighten market anxieties.

S&P Global Ratings also maintains its economic outlook for 2025, adopting a “probabilistic” approach and factoring in partial implementation of campaign promises. Their projection for annual average real GDP growth in 2025 and 2026 is set at 2.0% each, following an expected growth of 2.7% this year. They predict a slight deceleration in growth to 2.3% by the end of 2024 and 1.9% in 2025, down from 3.2% in late 2023.

Inflation is expected to remain above the 2% target for an extended period. Due to these inflation concerns, the likelihood of a shift away from the Federal Reserve’s easing bias has increased.

Higher interest rates, prompted by escalated inflation expectations and potential retaliatory measures from trade partners, could increase risk aversion in global financial markets. Additionally, inflation could erode the purchasing power gains from proposed tax cuts, potentially resulting in a net negative impact on economic output and job creation.

Implementing tariffs could initially cause a significant, though one-time, increase in consumer prices over the first 12-18 months. The Federal Reserve may respond by moderating its current policy easing, informed by the persistent inflation seen in 2021-2022.

S&P’s forecast incorporates a stable 3.5% yield on U.S. 10-year Treasury notes, factoring in a 1.1% real neutral rate, a 2% long-term inflation target, and a 40-basis-point term premium. They expect the term premium to rise due to the gradual unwinding of central bank balance sheets.

JPMorgan predicts a slight economic slowdown in 2025, with growth tapering to 2% and a minor increase in unemployment to 4.5%.

Conclusion

The outlook for the U.S. economy in 2025 remains cautiously optimistic. Expected GDP growth of 2.5% surpasses the broader consensus. Stabilizing inflation, a robust labor market, and consumer confidence signal a resilient economic environment. However, key policy changes, particularly in tariffs and immigration, may introduce uncertainties.

While the proposed policies aim to stimulate growth, they also carry inflationary risks and fiscal challenges. Businesses and investors should stay prepared for shifts in market conditions, balancing optimism with awareness of potential economic headwinds.