Weekly Buzz: 🎊 New year’s resolutions of the world's biggest economies

5 minute read

As we approach the time of year for ambitious New Year's resolutions, the world's largest economies are making their own plans for 2025. Let's see what's on their lists – though like most resolutions, some might prove easier said than done.

• The US: New year, new administration

The US is planning quite the makeover for 2025. The incoming administration's agenda includes business-friendly reforms and tax cuts – music to Wall Street's ears, which had already been celebrating early by pushing stocks to fresh highs since the election. But like that friend who pledges to save money while booking more vacations, some goals conflict. The president-elect's proposed tariffs could spark inflation, and that’s made the Federal Reserve scale back its plans for rate cuts in 2025.

• China: A fresh start

After a challenging year, China's committing to the economic equivalent of joining a gym. Policymakers are finally flexing their fiscal muscles, pledging more proactive measures to strengthen growth. While the property sector remains a pain point, efforts to boost domestic consumption could help China get back in economic shape – the big factor to watch is whether households start spending again.

• Europe: Changing old habits

Europe enters the new year looking to break with tradition. Germany, historically strict with government spending, is considering loosening its fiscal belt. It’s a timely shift for the largest economy in the bloc: the region might have to deal with the US president-elect’s proposed 10% to 20% tariff on all imports. While the European Union could respond with its own tariffs, that kind of tit-for-tat is a game nobody wins.

What’s the takeaway here?

Markets, like New Year's resolutions, rarely follow the path we expect. While each region charts its own course for 2025, there's one investing principle that stands the test of time: diversification. A portfolio that’s spread out across different assets and regions (like our General Investing portfolios) will be better positioned for whatever the new year brings.

Want a deeper dive into what the new year might hold? Check out our new 2025 Macro Outlook.

📰 In Other News: The Bank of Japan plays the waiting game

The Bank of Japan (BoJ) kept interest rates steady at 0.25% last week, despite core inflation accelerating from 2.3% to 2.7% in November. The decision sent the yen tumbling to a five-month low against the US dollar – but the bank's cautious stance makes sense when you look closer.

BoJ Governor Kazuo Ueda is watching for two key signals before making any moves: clarity on Trump's economic policies and sustained wage growth. While worker pay has been rising – up 2.8% from last year, and inching closer to the bank's sweet spot of 3% – the bank wants to see this momentum continue.

While central banks worldwide are pivoting toward rate cuts, Japan is on a different path. Consider this: it only ended negative interest rates this March – its first rate hike in 17 years – and moved to 0.25% in July. After decades of fighting deflation with ultra-loose policy, the BoJ is now simply looking to normalise rates.

🎓 Simply Finance: Core inflation

Think of your monthly expenses like a shopping cart. Some items, like petrol and food, have prices that bounce up and down frequently. Core inflation ignores these volatile items and instead focuses on the more stable prices of everything else – like clothing and housing. This gives economists and policymakers a better sense of the true underlying forces on prices in an economy.

Think of your monthly expenses like a shopping cart. Some items, like petrol and food, have prices that bounce up and down frequently. Core inflation ignores these volatile items and instead focuses on the more stable prices of everything else – like clothing and housing. This gives economists and policymakers a better sense of the true underlying forces on prices in an economy.

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