As we approach the final days of December, it’s that time of year when Wall Street engages in its favorite seasonal activity: making informed predictions about the potential for the U.S. economy to enter a recession in the upcoming year. This annual exercise is crucial for investors, businesses, and policymakers alike as they strategize for the future.
After experiencing a year marked by record-setting stock market gains and a decrease in inflation rates, although still elevated, many financial professionals are cautiously optimistic about the outlook for 2025. For instance, the Securities Industry and Financial Markets Association’s Economist Roundtable reflects this positivity. A survey involving over 20 economists reveals that, on average, they anticipate a 1.9% GDP growth for 2025, signaling resilience in the economy.
This projected growth rate is lower than the average expectation of 2.4% GDP growth for 2024, yet it indicates that the U.S. economy is likely to continue its steady progress without slipping into a recession. Gross Domestic Product, or GDP, serves as a comprehensive indicator of the nation’s economic activity. Economists generally favor an annual GDP growth rate within the 2% to 3% range. Insufficient growth or a contracting economy raises concerns about a looming recession, while excessive growth can lead to inflationary pressures.
The National Bureau of Economic Research (NBER) plays a pivotal role in determining the official dates for when the economy enters and exits recessions. A commonly accepted guideline defines a recession as occurring when there are two consecutive quarters of negative GDP growth, indicating a contraction in economic activity.
Understanding the Likelihood of a Recession in 2025
While no one possesses a crystal ball that can accurately forecast economic conditions, the prevailing consensus suggests that the economy will likely continue its expansion into 2025, albeit at a more tempered pace than experienced this year. According to SIFMA, nearly half of the roundtable participants estimate the odds of a recession occurring in 2025 to be 15% or less, while another one-third believe the chances fall between 15% and 30%. This analysis reflects a cautious optimism among economists.
Here are insights from several financial experts regarding their expectations for the economy in 2025.
Insights from David Mericle, Chief U.S. Economist at Goldman Sachs Research
“Recession fears have diminished significantly, inflation is moving back toward the 2% target, and the labor market has rebalanced while remaining robust,” Mericle stated in a Nov. 20 post. He projects a GDP growth rate of 2.5% for the upcoming year, indicating confidence in economic stability.
Mericle also highlighted three major anticipated policy changes resulting from the Republican sweep of the White House and Congress, which could influence the economy in 2025: increased tariffs, stricter immigration policies, and the continuation of several expiring tax cuts from 2017 that were enacted during President-elect Donald Trump’s first term.
Perspectives from Paul F. Gruenwald, Global Chief Economist at S&P Global
“Even before taking office, a second Trump administration is already shifting the macro-financial landscape and amplifying downside risks,” Gruenwald noted in a Nov. 27 research outlook. He emphasized that these implications extend beyond the U.S. and could have a substantial impact on the global economy.
“Potentially significant changes in fiscal, trade, and immigration policy from the U.S. represent substantial unknowns at this stage,” he elaborated. “Given the size of the U.S. economy, policy actions in any of these areas can influence the global economic environment.” Despite these uncertainties, Gruenwald forecasts a GDP growth rate of 2% for the U.S. in 2025.
Mark Zandi’s Optimistic Outlook as Chief Economist at Moody’s Analytics
“I believe the economy is on solid footing,” Zandi expressed during a Dec. 4 episode of The David Lin Report podcast. He stated that he does not foresee a recession in 2025, despite some labor market indicators suggesting that a recession could be on the horizon, attributing these signals to distortions in the labor supply.
Although some possible changes introduced by the incoming Trump administration, such as increased tariffs, might create challenges for the economy, Zandi remains optimistic. He conveyed to Lin, “While I acknowledge there are threats and challenges ahead… the fundamental economic conditions appear favorable.”
Joe Davis’s Forecast as Global Chief Economist at Vanguard
Davis shared in a Dec. 11 forecast posted on Vanguard’s website that a recession isn’t the firm’s “baseline” expectation. Instead, they anticipate a growth rate of 2.1% for the economy in 2025, reflecting a cautious but positive outlook.
Neil Shearing’s Analysis as Group Chief Economist at Capital Economics
Shearing offered the perspective that even if the stock market experiences a significant downturn next year, it does not automatically signal an impending recession.
“The collapse of this bubble might attract headlines, but its macroeconomic effects could be surprisingly limited,” he noted in a recent analysis. “While GDP may stagnate for several quarters, the recession that many anticipate from this event is by no means guaranteed.” This indicates a potential resilience in the economy.
Warnings from Steven Hanke, Professor of Applied Economics at Johns Hopkins University
Not all experts share an optimistic view of the economy for the upcoming year. Hanke expressed in a Nov. 15 interview on NYSE TV, “My outlook is that the economy is poised to slow down and is likely to face a recession next year.” He cautioned about the potential repercussions of Trump’s trade policies on economic growth, asserting that, “If he implements many of the protectionist measures he has proposed, it will have a significant negative impact on the economy.”
Explore More Insights and Articles from Money:
Discover how I let AI and my 5-year-old choose my stocks. Who performed better?
Learn how much house you can afford. Many buyers are overlooking a classic rule of thumb.
Understand what investors can glean from the worst-performing stocks of the year.
