Key Convictions: First quarter 2025

The investment outlook for 2025 suggests a favorable environment for fixed-income investments, driven by strong global growth and progress on inflation. While the US is expected to lead among developed markets, the growth gap is likely to narrow, presenting selective opportunities in various credit markets. Global growth is projected to slow slightly but remain positive, with inflation trending downward towards central banks' targets. Shorter-term rates are anticipated to decline, aligning with potential central bank rate cuts, offering a stable source of duration. Central banks are expected to have room to adjust rates further, although this will vary globally.

Corporate credit fundamentals appear strong, supported by healthy free cash flow and balance sheets, though geopolitical factors pose risks. Specifically, Trump's protectionist policies, including tariffs, are likely to cause temporary market disruptions. These tariffs, targeting China, the eurozone, and Mexico, could elevate inflation and suppress economic activity among key trading partners. The broader implications include weaker global growth and potential retaliatory responses. Latin America, especially Mexico, might face economic challenges from a stronger dollar and lower oil prices, while Japan and the eurozone could see disinflation and reduced growth due to export declines.

Asian economies, notably China, may counteract these impacts through fiscal and monetary strategies. Australia's economic growth and inflation could soften due to its close trade relationship with China. Overall, the investment environment requires careful navigation of geopolitical risks and a strategic focus on credit markets to capitalize on opportunities while managing potential disruptions.