Five big trends to watch in 2025

The world trading order is being fundamentally reshaped, moving far beyond trade restrictions and tariffs. This shift began under the presidency of Barack Obama, when the Trans-Pacific Partnership (TPP) sought to enforce rules and collective leverage, largely in response to China. Under the first term of President Trump, tensions escalated dramatically. Companies like Huawei faced targeted sanctions, while tariffs were imposed on a broad range of goods.

Biden has kept most tariffs in place, layering on more precise restrictions on technology and military. Trump’s 2024 proposals could escalate matters further, including 60 per cent tariffs on Chinese imports and a 10 per cent tax on US consumers buying goods from other countries. Various legal tools – such as Section 301 (retaliation), Section 232 (national security), and IEEPA (emergencies) – would likely be deployed. While the specifics of timing, implementation, and negotiation remain unclear, any escalation could well be swift and forceful.

China and Russia have responded by deepening their ties and projecting soft and hard power across their spheres of influence. They are not just standing still, but actively investing in alliances, trade networks, and regional dominance (see Figure 1).

Despite these tensions, globalisation is not reversing – trade volumes continue to grow – but it is becoming more fragmented and polarised. Electrification and power-hungry AI make rivalry for copper, chips, batteries, and inputs to supply chains ever more intense. Competing trade blocs are forming, creating new challenges for businesses and economies. It’s not an exaggeration to say that the cooperative, rule-based order of the last 35 years is largely over, replaced by a more contested, fractured system.

Trump’s second term will likely echo elements of his first but with key differences. Many of his proposed senior staff are aligned with Project 2025 – an effort to install pre-vetted operatives ready to act on Day One. The goal is clear: deconstruct the administrative state and reshape it into a socially conservative, economically libertarian framework. Supporters claim this could deliver trillions in efficiency savings while neutralising opposition from entrenched bureaucracy.

The incoming administration has pledged sweeping tax cuts, from extending the Tax Cuts and Jobs Act to floating more ambitious proposals, such as eliminating taxes on tips, Social Security income, and non-residents. Lowering corporate tax rates even further is also on the table. Combined, these measures point to a large-scale fiscal loosening, with deficits of 7 per cent of GDP far more likely than 3 per cent. Alongside tax cuts, immigration reforms would play a central role. Such policies, could restrict labour supply and make the cabinet’s target of 3 per cent GDP growth difficult to achieve.

To partially offset these tax cuts, Trump has proposed raising revenues through tariffs, using them as both a fiscal tool and a political lever to force China, Mexico and other countries into compliance with unrelated US policies (see Figure 2). In our assessment, economic impacts–on trade, inflation, and global supply chains–would far outweigh their fiscal benefits, as taxes on trade will be only a small fraction of overall federal revenues.

Trump’s agenda would also prioritise deregulation across key industries, with a strong emphasis on promoting domestic energy production. Though achieving an additional three million barrels per day – another proposed target – remains unlikely, fossil fuel production would see renewed support. Defence spending would rise further, benefiting US manufacturers and their global customers. Financial markets, cryptocurrency, and consumer protection rules are also likely to face sweeping deregulatory efforts, reinforcing Trump’s pro-business stance and bolstering the US’ attractiveness for investment.

While this vision would seek to solidify US exceptionalism, both economically and politically, it comes with trade-offs. Larger deficits, inflationary pressures, and trade disruptions could stoke volatility, while immigration curbs risk undermining workforce growth. Trump’s policies may sharpen the US’ competitive edge, but they could add turbulence to an already fractured global economic landscape.

The era of synchronised monetary policy is fading. After a period of intense inflation volatility – fuelled by supply chain disruptions, commodity shocks, and pandemic-driven fiscal spending – pressures are finally easing. Inflation has normalised, recession fears have receded, and central banks around the world have begun to cut rates. The debate over “when” interest rates would turn has largely been resolved; the focus now shifts to how far and how fast they move – and when they stop.

Yet, despite this broad trend of monetary easing, central banks are increasingly charting their own paths. Trade restrictions, tariffs, and geopolitical pressures are creating uneven economic impacts across regions, meaning countries will respond differently to localised risks (see Figure 3). This growing divergence marks a sharp break from the synchronised cycles seen during the pandemic and its aftermath.

Without a large, global shock to realign monetary policy – such as a major economic collapse or another systemic crisis – central banks are likely to move further out of step with one another. Some economies will see sharper rate cuts to stimulate growth, while others may hold steady or tighten policy to contain inflation or external shocks.

This divergence brings opportunities for investors, particularly in fixed income and currency markets, where relative value strategies can thrive as interest rate paths decouple. As central banks go their separate ways, the winners and losers in global markets will increasingly depend on regional economic conditions, trade dynamics, and geopolitical risks. In our assessment, many drivers are aligned for the continued strength of the US dollar.

In short, the era of synchronised central bank action is over. For markets, the divergence in monetary cycles will be a key theme in 2025, offering both challenges and opportunities for those prepared to navigate the new landscape.

Global conflicts are on the rise, marking a stark contrast to the post-Cold War years when geopolitical risks seemed to fade. Even the conclusion of wars in Afghanistan and Iraq brought little relief. It was Russia’s invasions of Ukraine – first in 2014 and then more forcefully in 2022 – that redefined the relationship between war and markets. The incursion triggered sanctions, bond defaults, disruptions in commodity supply, and inflicted widespread economic and human suffering, not just in Ukraine but around the globe.

The current list of concerns is long. Ukraine and the Middle East remain active theatres of conflict, while tensions continue to simmer in other regions. The South China Sea remains a potential flashpoint, alongside India’s border disputes and the ongoing risk of escalation over Taiwan. Meanwhile, internal struggles involving non-state militias in Africa, Asia, and Latin America add further layers of complexity.

Iran stands out as particularly vulnerable. Its oil production, currently around 4 million barrels per day, could be slashed back to pre-Covid levels of roughly 2.5 million barrels per day if sanctions or military actions intensify. While the Organisation of the Petroleum Exporting Countries (OPEC+) has the theoretical capacity to fill the gap, markets would face significant disruption in practice.

Though hopes persist for peace or at least ceasefires in key regions, the evidence suggests otherwise: we have entered a more dangerous geopolitical era that shows little sign of retreating. Conflicts today are not isolated events, they affect global markets in ways that are difficult to predict (see Figure 4). Wars have historically driven strong performance in commodities and, at times, equities. However, the build-up to conflict often creates high uncertainty, particularly if capital flows, supply chains, or critical resources are disrupted.

This heightened geopolitical volatility could challenge the baseline outlook for growth and inflation. For investors, navigating this environment means preparing for the unexpected, whether that’s energy market shocks, commodity price spikes, or sudden disruptions to global trade.

The ongoing technological revolution – spanning AI, genomics, solar power, and electric vehicles – is gathering momentum, but the breadth and speed of its impact remain key questions. In previous House Views, we asked whether AI adoption would follow the steep curve of smartphones or the slower uptake of cloud computing. The latest data is encouraging: household and enterprise use of generative AI models surged throughout 2024 and shows no signs of slowing.

However, while the potential use cases for AI are expanding, its mass efficiency gains are still elusive. Many “general knowledge” and non-linear tasks remain beyond automation, limiting its broader economic impact. For now, at least. That hasn’t slowed investment: capital expenditure among AI ‘hyperscalers’  tech giants driving the infrastructure – has been growing at more than twice the pace of broader US fixed investment since the pandemic. Domestic production of computers and electronics has soared in tandem, signalling sustained momentum (see Figures 5 and 6).

But the AI boom brings with it enormous power demands. According to the International Energy Agency (IEA), hyperscale data centres require ten times more energy than traditional centres, and their consumption is already straining local grids.³ In Ireland, for instance, data centres now account for a staggering 21 per cent of total electricity use.⁴

Global AI energy demand is accelerating at an estimated 26-36 per cent annually, raising critical questions about sustainability and energy security.⁵

This has put alternative energy sources back in the spotlight. Nuclear power – long considered an industry in decline – is forecast to reach new highs in 2025. Solar and wind energy are expected to drive nearly 75 per cent of the growth in global electricity production over the next year.⁶ But this rapid expansion comes with challenges. Building out grids, batteries, and power generation infrastructure will require massive investment and a sharp rise in demand for key commodities and components.

As the tech boom unfolds, its ripple effects are becoming clear. AI may lead the charge, but its success depends on overcoming energy constraints and supply chain bottlenecks. For investors and policymakers alike, balancing innovation with infrastructure readiness will be critical as 2025 approaches.