A whistlestop tour of the last 12 months, some key events in 2025 impacting the global economy, and looking ahead to 2026
- “We are at an inflection point”
- Liberation Day – “A little tough love”
- A Klarna Budget – ‘Spend now, pay later’
- Global economy – “What we are seeing is demonstrable resilience”
- Market volatility – “You’re going to have to adapt to the world”
“We are at an inflection point”
Equity markets in 2025 have been impacted by a mix of competing forces. Geopolitical tensions and evolving US trade policies have sparked short periods of volatility, while supportive fiscal policy, easier monetary conditions, solid corporate earnings and continued enthusiasm for AI have bolstered markets, providing a resilient economic backdrop… but it hasn’t all been smooth sailing.
The World Economic Forum (WEF) in Davos (January 2025) was dominated by discussion about the global implications of Donald Trump’s return to the White House – particularly his stance on tariffs, deregulation and energy policy. WEF President and CEO Børge Brende noted, “We are at an inflection point,” saying that the event was taking place during “one of the most uncertain geopolitical and geoeconomic moments in generations.”
The Annual Meeting coincided with Trump’s inauguration, and on day four the newly sworn-in President addressed global CEOs virtually, setting out the priorities for his second term, saying, “Under the Trump administration, there will be no better place on Earth to create jobs, build factories, or grow a company than right here in the good old USA.”
Ngozi Okonjo-Iweala, Director General of the World Trade Organization urged fellow delegates, “Don’t hyperventilate – let’s keep calm and see what will actually happen.” And as Q1 progressed, while European markets outperformed on expectations of higher defence spending and hopes for a de-escalation of the Russia-Ukraine conflict, US equities came under pressure amid rising concerns about trade tensions and fiscal management. As Trump’s presidency embedded – we didn’t have to wait long for…
“A little tough love”
Donald Trump was the key factor shaping global affairs in 2025, this won’t change in 2026. Liberation Day trade traumas had a far-reaching impact back in April.It all kicked off with one “big, beautiful chart” featuring tariff increases for countries around the world, including 34% China, 20% EU, 49% Cambodia, UK 10%. Trump made it clear he was no longer allowing imports into the US without an appropriate tariff, saying countries should embrace “a little tough love.”
The market fallout was immediate. The futures markets crashed, with the S&P 500 losing $2trn in market capitalisation in under 20 minutes. The S&P 500 fell more than 10% in just three days. Global indices traded sharply lower as investors sought safety in gold and bonds. European Commission Chief Ursula von der Leyen said the policy would produce “dire” consequences for people around the world, adding there was “no clear path through the complexity and chaos.”
Days later, President Trump softened his approach, announcing a 90-day pause in the implementation of tariffs, giving countries a chance to enter into negotiations with the US.
The rebound
Following the sharp sell-off in global equity markets around Liberation Day, we have seen a strong and broad-based recovery. Volatility in late April and early May reflected a combination of concerns, from trade tensions and geopolitical risks to tighter financial conditions amid rising bond yields. The subsequent rebound through Q2 and into H2 was fuelled by a mix of macroeconomic resilience, shifts in policy expectations as Trump softened his stance, trade negotiations, renewed expectations of rate cuts, and a robust earnings season; with AI-driven earnings growth, particularly among US mega-cap tech companies, dominating.
This chart of the MSCI World Index shows the market rebound since Liberation Day (2 April 2025)
The MSCI World Index is a globally recognised equity benchmark, representing the performance of large and mid-cap stocks across developed markets
“What we are seeing is demonstrable resilience in the world”
The International Monetary Fund’s (IMFs) latest World Economic Forecast entitled, ‘Global economy in flux, prospects remain dim,’ shows projections have been revised upward from the spring forecast but continue to mark a downward revision. Global growth is projected to slow to 3.2% in 2025 and 3.1% in 2026, with advanced economies growing around 1.5% and emerging market and developing economies just above 4%. Inflation is projected to continue to decline globally, though wide variation across countries exists.
In October, IMF Managing Director Kristalina Georgieva said, “All signs point to a world economy that has generally withstood acute strains from multiple shocks… What we are seeing is demonstrable resilience in the world… we are also saying it is a time of exceptional uncertainty and downside risks are still dominating the forecast.”
IMF cites that downside risks to growth include prolonged uncertainty, more protectionism and labour supply shocks, while stability is threatened by fiscal vulnerabilities and potential financial market corrections. IMF urges policymakers to restore confidence through credible, transparent and sustainable measures – strengthening trade diplomacy, restoring fiscal buffers and safeguarding central bank independence.
For the UK, IMF predicts growth of 1.3% in 2025 and 2026. Although revised up from April estimates, reflecting an improvement in the external environment, including the UK-US trade deal announced in May, the projected growth is still lower than October 2024 forecasts.
A Klarna Budget – ‘Spend now, pay later’
At home, 2025 proved a challenging year for the government. Sir Keir Starmer’s tenure has been turbulent, with Labour’s promise of growth slow to materialise. Stubborn inflation, high living costs and weak economic momentum have left many households feeling worse off, while long-standing pressures in public services limited visible progress. Global uncertainty and tight fiscal conditions certainly added to the challenge.
Rachel Reeves’ 26 November Budget – labelled the ‘Klarna Budget’ – underscored this difficult backdrop, with tax rises of £26bn announced. The Institute for Fiscal Studies notes that the Chancellor is relying heavily on back-loaded tax hikes and increased medium-term borrowing – hence the moniker: spend now, pay later.
Bank Rate has been gradually cut throughout the year, as the Bank of England (BoE) weighs inflation trends against economic softness. BoE forecasts inflation will remain above its 2% target until Q2 2027.
Looking ahead, 2026 is shaping up to be a year of political insurgents, with May’s local elections likely to be a telling barometer. It also marks the tenth anniversary of the Brexit referendum and the five-year review of Boris Johnson’s Trade and Co-operation Agreement – ensuring Brexit re-enters the national conversation. With polls showing over 56% now viewing Brexit as a mistake, the government is pursuing steps to ease trade frictions by aligning with EU food standards and adopting shared energy and environmental rules.
In a historic moment for the London Stock Exchange, the FTSE 100 Index surged past the 9,000-point mark for the first time ever on 15 July 2025, setting a new all-time high.
Market volatility – “You’re going to have to adapt to the world”
Despite challenges – the fallout from Liberation Day being the most significant in 2025 – global stock markets have demonstrated resilience. Renowned investing principal Warren Buffet dismissed market volatility in the spring as “really nothing” to worry about. He elaborated, “If it makes a difference to you whether your stocks are down 15%, you need to get a somewhat different investment philosophy.” Buffet added, “The world is not going to adapt to you. You’re going to have to adapt to the world. People have emotions but you’ve got to check them at the door when you invest.”
The overriding message is, volatility is a normal part of investing. Emotions run high and it’s not always easy to block out the short term ‘noise’ and focus on longer term goals, but investors who keep perspective, avoid knee jerk reactions and stick to their long-term plan are far better placed to ride out the turbulence.
The CBOE Volatility Index or the VIX® Index is a measure of the US stock market’s expectation of volatility based on S&P 500 Index options. Widely known as the ‘Fear Index,’ the higher the VIX® Index, the greater the level of fear and uncertainty in the market, with levels above 30 indicating tremendous uncertainty, levels above 20 regarded as ‘high’ and below 12 as ‘low’ volatility.
- In 2025, the VIX® peaked on 8 April at 52.33
- In early December (at the time of writing), the VIX® Index had moderated to around 16.19.
Did you know?
Oxford University Press has named ‘rage bait’ its 2025 Word of the Year – and no, they insist they’re not rage-baiting us with a two-word winner! The term describes online content deliberately crafted to provoke anger or outrage to drive clicks and engagement – and its usage has tripled in a year. It feels fitting. The online environment is saturated with high-octane commentary, often blurring the line between messaging and provocation – and adding yet more ‘noise’ for investors to tune out
2026 – key themes for the year ahead
The US – Trump, midterms and a 250th Anniversary!
2026 will be defined by the unpredictable influence of President Trump. The real economic test will show as 2026 progresses – tariff impacts should become more visible, placing pressure on consumers, supply chains and global growth. A pivotal moment arrives in May, when Jerome Powell steps down – Trump’s pick for the next Federal Reserve Chair will signal whether the central bank’s independence holds or erodes. On 3November 2026, all 435 House seats and 35 Senate seats are contested in mid-term elections. With Republicans holding a slim House majority, Democrats view this as their chance to reassert influence. And America’s 250th anniversary will no doubt amplify political spectacle and national introspection.
Global geopolitics – a new order emerging
As the world continues to drift towards ‘coalitions of the willing,’ partnerships on defence, climate and trade will likely emerge. Although China enters 2026 with its own economic headwinds – deflation, slowing growth and excess industrial capacity – ‘America First’ creates opportunities for Beijing to extend its influence – as Trump ostracises nations – other alliances forge. One challenge will be keeping US-China relations transactional rather than confrontational.
Europe faces an increasingly difficult balancing act – strengthening defence, maintaining US ties, reviving growth and managing deficits simultaneously.
Conflict hot spots remain fragile: hopes for a lasting peace in Gaza, a continuing war in Ukraine, turmoil in Sudan and Myanmar, and persistent ‘grey-zone’ pressure from Russia and China in Northern Europe and the South China Sea.
AI – booming investment, slow adoption
American tech giants spent over $400bn on AI data centres and infrastructure in 2025, but revenues total around $50bn. Despite 800 million global ChatGPT users, formal business adoption is still modest, with only around 10% of large firms having embedded AI. The focus for 2026 is speeding up adoption; crucial given AI-linked companies now make up 44% of S&P 500 market cap.
Climate and clean tech momentum
Global emissions likely peaked in 2025, with clean-tech investment expanding across the Global South. Many firms remain committed to climate targets, though some may downplay their messaging to avoid political scrutiny in Washington.
Opinion on the year ahead
We aren’t in the habit of making predictions, but here are some thoughts from reputable banks and organisations for consideration
‘Global real GDP growth will continue to slow over the next year but improve somewhat in 2027… For many economies around the world, the negative shock to growth associated with US tariffs is beginning to manifest. Surges in exports to the US, resulting from front-loaded demand and inventory stockpiling among US businesses ahead of tariff implementation, resulted in strong growth rates in H1 2025 for many economies. We expect weaker numbers in Q4 2025 and early 2026 as the full weight of tariffs takes its toll’ – The Conference Board
‘Global growth will likely remain steady but subdued with advanced economies growing modestly and emerging markets mostly maintaining stronger momentum. On trade, the possibility of China and the US decoupling has increased with rising restrictions and uncertainty, but other global economies could strengthen their relationships. Outlooks vary widely across G-20 economies’ – Moody’s
‘The global economy is undergoing a period of profound transformation, marked by persistent short-term disruption and heightened uncertainty as well as long-term structural change. Regional outlooks are divergent: the US faces subdued prospects and inflationary pressures; Europe shows fragile but improving growth; China confronts deflationary headwinds; and emerging regions such as Sub-Saharan Africa and the Middle East and North Africa project stronger momentum’ – World Economic Forum
Today’s world is unpredictable. Whatever happens in the markets, we can you help take control with a long-term financial strategy, so you can face the future with confidence.
Here’s to a happy, healthy and prosperous 2026!
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. It is important to take professional advice before making any decision relating to your personal finances. This document does not provide individual tailored investment advice and is for guidance only.
All details are believed to be correct at time of writing – 05 December 2025.