Slide 1: Economic and capital markets outlook 2025-26: Defying gravity?
markets outlook Allianz Research 19 December 2024 Economic Defying gravity? End of Q4 2024 updated economic and capital Outlook 2025-26: https://unsplash.com/photos/shallow-focus-photo-gray-balance-stone-HWRAHxoBlpU Film Industry Rétroviseur Clapper Board extérieur Photograph noir montrant Panoramic
Slide 2: Economic Outlook 2025-26: Defying gravity?
GLOBAL ECONOMIC OUTLOOK 2025-2026 Economic Outlook 2025-26: Defying gravity? 1 Global economic growth: Not quite "dancing through life". Global real GDP growth is expected to remain moderate but steady at +2.8% in 2025-26. We expect developed economies to experience a slight slowdown, with growth ta
Slide 3: Global macro 2025-2026
Global macro 2025-2026 © Allianz 2024 3
Slide 4: Global growth: Four years in a row below 3%
GLOBAL ECONOMIC OUTLOOK 2025-2026 Global growth: Four years in a row below 3% Global real GDP growth US growth to slow-down below potential GDP growth, q/q % (not annualized) © Allianz 2024 Sources: LSEG Datastream, Allianz Research 4
Slide 5: From Ballots to Realpolitik: The year after the super election-year
GLOBAL ECONOMIC OUTLOOK 2025-2026 From Ballots to Realpolitik: The year after the super election-year Newly elected politicians face the ugly task of …which weighs on growth and social resilience tightening fiscal deficits... fueling risks of public backlash Primary balance, % of GDP © Allianz 2024
Slide 6: Geopolitical risk: Further elections ahead while military conflicts continue
GLOBAL ECONOMIC OUTLOOK 2025-2026 Geopolitical risk: Further elections ahead while military conflicts continue Apr 2026: Parliamentary election Q1 2025: Presidential election 2025: Potential parliamentary election Outlook: heightened pressure from Tisza, Outlook: following the annulment of the Open
Slide 7: Risks to our scenario: More downsides than upsides
GLOBAL ECONOMIC OUTLOOK 2025-2026 Risks to our scenario: More downsides than upsides Factor Market Theme Description Probability Macro impact Market impact Rising tariffs will raise inflation in the US and depress global Growth - - DM interest rates: - Trade Full blown trade war 45% economic confide
Slide 8: Global Economy can endure a contained trade war
GLOBAL ECONOMIC OUTLOOK 2025-2026 Global Economy can endure a contained trade war, with tariffs largely used as a bargaining tool US effective tariff rate under two scenarios Top 15 most impacted countries % Trade losses, USDbn Contained trade war Full-fledged trade war (USDbn) (USDbn) 2025-26 2025-
Slide 9: Global trade recovery to stumble from rising tariffs
GLOBAL ECONOMIC OUTLOOK 2025-2026 Global trade recovery to stumble from rising tariffs amid fragility of complex supply chains Downside revisions in the context of the trade war, The complexity of global supply chains doubled particularly in prices in 2025 and in volume in 2026 compared to 2017 Glob
Slide 10: Corporates build up precautionary stocks ahead of trade war
GLOBAL ECONOMIC OUTLOOK 2025-2026 Corporates build up precautionary stocks in anticipation of the looming trade war Frontloading US imports from China, particularly in Inventory rebalancing to continue Days inventories consumer goods that could see higher tariffs in 2025 US imports from China % y/y
Slide 11: Cyclical Gaps: Europe must revive investment
GLOBAL ECONOMIC OUTLOOK 2025-2026 Cyclical Gaps: Europe must revive investment to avoid a shrinking growth potential Limited room for further growth acceleration The Eurozone suffers from structurally weak in the US domestic demand with particularly low investment index 2019=100 Supply shortfall, st
Slide 12: Consumption: Confidence is key to improve demand
GLOBAL ECONOMIC OUTLOOK 2025-2026 Consumption: Confidence is key to improve demand Consumer sentiment is still undermined by high Savings rates remain far above their pre-pandemic political and economic uncertainty levels in Europe, while in the US, they have fallen below Consumer confidence, Z scor
Slide 13: Labor market tightness is easing, supporting wage growth normalization
GLOBAL ECONOMIC OUTLOOK 2025-2026 Labor market tightness is easing, supporting wage growth normalization Vacancy rates have started to decline from Wage growth is set to normalize globally record highs during the post-pandemic recovery quarterly real wage growth, % y/y 12 Germany Spain 10 France Ita
Slide 14: Most large economies to reach inflation target in 2025
GLOBAL ECONOMIC OUTLOOK 2025-2026 Most large economies to reach inflation target in 2025 but disinflation process to stumble in US Inflation forecasts Approaching central bank targets in 2025 Quarterly inflation rates, y/y % © Allianz 2024 Sources: LSEG Datastream, Allianz Research 14
Slide 15: US policy to have significant impact on oil & gas prices in 2025
GLOBAL ECONOMIC OUTLOOK 2025-2026 US policy to have significant impact on oil & gas prices in 2025 Natural gas prices to remain under pressure in 2025 Under tougher sanctions, we expect oil to trade +10% in EUR/MWh higher on average in 2025 in USD/bbl © Allianz 2024 Sources: LSEG, Allianz Research S
Slide 16: Central bank easing cycles to come to a halt in 2025
GLOBAL ECONOMIC OUTLOOK 2025-2026 Central bank easing cycles to come to a halt in 2025 with Bank of Japan being the outlier Central bank cutting cycle under way except for BoJ Global quantitative tightening in 2025 with which has only started its tightening cycle the BoJ finally joining % bn USD, EU
Slide 17: Central banks in emerging markets to err on the side of hawkishness
GLOBAL ECONOMIC OUTLOOK 2025-2026 Central banks in emerging markets to err on the side of hawkishness or cautious easing The rise in US tariffs could be partly mitigated by FX… …but will delay easing cycles across EM regions USDLCU FX rate change and change to match tariff hike, in % ppts © Allianz
Slide 18: EMs with higher savings better shielded from FX and BoP risks
GLOBAL ECONOMIC OUTLOOK 2025-2026 EMs with higher savings will be better shielded from FX and balance of payment risks A handful of EMs in each region face large external …while their exposure to BoP risks and market financing requirement in the next 12 months… volatility is also high Gross external
Slide 19: China's fiscal and monetary package to add +0.4pp to 2025
GLOBAL ECONOMIC OUTLOOK 2025-2026 China’s fiscal and monetary package to achieve 2024 GDP growth target and add +0.4pp to 2025 Easing measures since the end of September have been focused on reducing the structural risk of a fiscal/financial crisis, rather than stimulating short-term growth Main mea
Slide 20: Limited China impulse to emerging markets
GLOBAL ECONOMIC OUTLOOK 2025-2026 Limited China impulse to emerging markets Underperforming China’s private consumption Next-generation trade hubs are usually in China’s sphere remains a major drag for global growth of influence, Distance to pre-pandemic trend Geoeconomic distance to China versus th
Slide 21: Business insolvencies to plateau at a high level in 2025
GLOBAL ECONOMIC OUTLOOK 2025-2026 Business insolvencies to plateau at a high level in 2025 Insolvency heat map 2025 Regional and global insolvency indices, annual level, Noticeably Taïwan Italy Morocco basis 100: 2016-2019 avg increasing Türkiye Portugal (+5% and more) Russia Increasing China India
Slide 22: Regional outlooks 2025-2026
Regional outlooks 2025-2026 © Allianz 2024 22
Slide 23: Reduction of the US deficit would require drastic spending cuts
UNITED STATES Reduction of the US deficit would require drastic spending cuts if taxes are not raised Entitlement programs make up the bulk Large savings could target ACA, federal agencies, of federal spending ‘’unauthorized’’ spending by Congress USD trn USD bn © Allianz 2024 Sources: LSGE Workspac
Slide 24: Full implementation of deportation pledge could reduce US potential growth
UNITED STATES Full implementation of deportation pledge could reduce US potential growth by -0.6pp Slowing immigration inflows and deportations would Sectors reliant on foreign labor would suffer the most weigh drastically on population growth % of workforce foreign-born % y/y 0.7 40 0.6 35 0.5 Base
Slide 25: Eurozone's domestic demand awakens, but productivity needs attention
EUROZONE Eurozone’s domestic demand awakens, but productivity needs attention Economic momentum will be fueled by a rebound in Eurozone real GDP per employee is at the same level consumption and investment as in 2018 suggesting low productivity growth % thousand euro in 2015 prices © Allianz 2024 So
Slide 26: Next Generation EU: two years to go
EUROZONE Next Generation EU: two years to go, still 60% of total resources to be disbursed Heterogenous disbursement paths across countries, The funds have helped boost the pace of investment and risk of further delays remain growth in Southern Europe Gross fixed capital formation, 2019=100 RRF Tota
Slide 27: Germany struggles with high energy costs and reform delays
GERMANY Germany struggles with high energy costs, lack of competitiveness, and reform delays Energy-intensive industries have taken a hit from German GDP growth outlook 2025 revised to the high energy costs downside amid trade war and uncertainty Index, Feb 2022 = 100 y/y in % © Allianz 2024 Sources
Slide 28: Germany needs a new direction and close alliance between politics and business
GERMANY Germany needs a new direction and a close alliance between politics and business Total value creation dropped post-pandemic to Less regulation, more investment historically low levels economic profits in USDbn Increase investment in infrastructure, decarbonization and digital innovation to 5
Slide 29: Political uncertainty will weigh on growth in France
FRANCE Political uncertainty will weigh on growth while deficits will remain high Large increase in uncertainty and widening of The size of the fiscal adjustment in 2025 will be lower bond spread than initially planned (change in structural balance, % GDP) 650 Economic policy uncertainty index 90 1.
Slide 30: Subtle signs of economic softening in Italy
ITALY Subtle signs of economic softening while embarking on fiscal efforts A resilient labor market and wages recovery will ..while NGEU catch up will not make up for the 2020- support consumption.. 2023 Superbonus boost 8 6 (GDP components, Q4 2019=100) 140 Hourly wages (Y/Y in %) 7 130 Employment
Slide 31: Spain: Investment and consumption will catch up with exports
SPAIN Investment and consumption will try to catch up with exports Monetary policy easing should support private ..while tourist expenditure will surpass EUR 120 bn consumption and corporate investment in 2025.. this year loan growth, % y/y cumulative monthly expenditure, EUR bn 120 2024 2023 100 20
Slide 32: UK: Growth momentum to improve but tax hikes a downside risk
UNITED KINGDOM Growth momentum to improve amid looser financial conditions but tax hikes a downside risk Positive wealth effects should support Tax set to increase from 2025, notably the National household consumption Insurance 15 as the BoE loosens 30 10 GBP bn, diff vs neutral stance 0.0 Household
Slide 33: China: Policy support to cushion but not prevent slowdown
CHINA Policy support to cushion but not prevent an economic slowdown in coming years The contained trade war and still soft domestic Chinese growth is benefitting less the rest of the demand weigh on the economic outlook world, in part due to the continued rise of services 2024, 2025 and 2026 GDP gr
Slide 34: EM Asia resilience thanks to monetary easing
EMERGING MARKETS – ASIA EXCLUDING CHINA EM Asia resilience thanks to monetary easing and promising long-term trade potential Growth to moderate in 2025-26 but remain robust Resilience stems from expected monetary easing and GDP growth forecasts and short-term country risk, as of Q4 2024 still strong
Slide 35: LatAm: Will economic growth or inflation last longer?
EMERGING MARKETS – LATAM Will economic growth or inflation last longer? Our short-term country risk indicators point towards Inflation at year-end still above or in the upper-end of an overall improvement, but fragilities remain the target band (pps) target range 2024-end inflation exp. 2025 exp. 7
Slide 36: Growth in CEE gains momentum supported by wage increases
EMERGING MARKETS – EUROPE Growth in CEE gains momentum supported by double-digit wage increases Improved growth prospects in Central and Eastern Real wage growth has surged in the region Europe in 2025 y/y in % y/y in % © Allianz 2024 Sources: Allianz Research Sources: LSEG Datastream, Allianz Resea
Slide 37: Africa & Middle East: Debt, liquidity and oil dictate outlook
EMERGING MARKETS – AFRICA & MIDDLE EAST Debt, liquidity and oil continue to dictate the region’s outlook GDP growth to pick up slightly in 2025, with oil Debt service to increase throughout the continent, Morocco B1 exporters underperforming while government debt starts to stabilize (% of GDP) Egypt
Slide 38: Capital Markets outlook 2025-2026
Capital Markets outlook 2025-2026 © Allianz 2024 38
Slide 39: Hard landing risks have not materialized in 2024
CAPITAL MARKETS – REVIEW OF 2024 Hard landing risks have not materialized in 2024 keeping rates and equity markets up Instead of the initial 160bps of rate cuts expected by Nevertheless, equity markets soared on defense, AI markets, only a 100bps have been delivered in 2024 and American reshoring wh
Slide 40: Uncertainty has fallen after the super-election year
CAPITAL MARKETS – REVIEW OF 2024 Uncertainty has fallen after the super-election year and the start of the global monetary easing cycle Investors anticipate less volatility in equities, rates … but concentration risk across risky assets remains and currencies as election uncertainty fades… one of th
Slide 41: The dollar and bonds echo 2016 post-Trump election
CAPITAL MARKETS – REVIEW OF 2024 The dollar and bonds echo 2016 post-Trump election while equities diverge Trump wins (first day market Trump wins (overall Trump wins fst 100d reaction until in office (reaction This time is S&P500 18/12/2024 5872 % reaction) 2.5% 18.12.2024) 1.5% until 30.4.2025) di
Slide 42: Markets to navigate the aftermath of the super-election year
CAPITAL MARKETS – FORECAST SUMMARY Markets to navigate the aftermath of the super- election year Capital Markets: Eurozone and US Capital Markets: UK, Emerging Markets, FX year-end figures year-end figures EMU Last* Unit 2022 2023 2024f 2025f 2026f UK Last* Unit 2022 2023 2024f 2025f 2026f Governmen
Slide 43: Long-term yields have priced in central bank easing
FIXED INCOME - RATES Long-term yields have priced in central bank easing but will increasingly depend on bond vigilantes Sovereign bond yields to move sideways with lower With the Fed and overseas investors reducing their policy rates largely priced in ownership share, rate sensitive investors take
Slide 44: The ECB's accelerated QT offsets policy rate cuts
FIXED INCOME - RATES The ECB's accelerated QT offsets policy rate cuts and Germany's fiscal austerity Germany’s high capital key & low debt led to ECB Nevertheless, policy rate cuts and falling inflation buying comparatively more bunds – now it’s selling expectations outweigh demand & supply imbalan
Slide 45: Monetary policy normalization will bull-steepen curves
FIXED INCOME - RATES Monetary policy normalization will bull-steepen curves but it is not enough to save French spreads Yield curve inversion to cease unevenly, Germany Spread normalization continues except for France lags with comparatively high ECB terminal rate characterized by political turmoil
Slide 46: French government bond spreads prone to rise
FIXED INCOME - RATES French government bond spreads prone to rise based on fundamentals while Spain outperforms Fair value models showing lower spreads in Spain… … while indicating upward pressure in France bps bps © Allianz 2024 Sources: LSEG Datastream, Allianz Research Sources: LSEG Datastream, A
Slide 47: France's fiscal r* gap widens, US faces budget strain
FIXED INCOME - RATES France's fiscal r* gap widens, while the US faces budget strain on serving its large debt stock France faces a large fiscal r* gap, while Spain excels But the US stands out with high interest payments thanks to high nominal GDP growth eating up a slimmer government budget yields
Slide 48: Strong Dollar reflects central bank divergence
FX Strong Dollar reflects central bank divergence as Fed stays a high for a bit longer The USD looks increasingly overvalued against JPY Interest rate differential points to ongoing weakness and CNY but not the EUR of EURUSD but lower geopolitical risk should support Real effective exchange rate ind
Slide 49: Optimism unleashed, markets soar on earnings growth bets
EQUITY MARKETS Optimism unleashed, markets soar as investors bet on earnings growth Valuations represent more than half of the 24, ... and even at a sector level the outperformance of performance depicting economic optimism… cyclicals vs defensives shows a bet on growth % Cyclicals vs defensives, y/
Slide 50: Economic uncertainty expected to cap upside for most asset classes
EQUITY MARKETS Significant economic uncertainty is expected to cap the upside potential for most asset classes This market exuberance is unfolding amid an Tight valuations and high economic uncertainty will increasingly uncertain and challenging environment limit upside potential across assets movin
Slide 51: US optimism persists, but returns likely to decelerate
EQUITY MARKETS US economic and market optimism persists, but returns are likely to decelerate Investors remain highly optimistic about US equities, Two consecutive years of +20% returns is rare but though a deceleration in momentum appears likely three in a row tends to be a bubble-like black swan ©
Slide 52: Earnings rebound anticipation meets the need to deliver
EQUITY MARKETS Earnings rebound anticipation meets the need to deliver An earnings rebound and acceleration are anticipated, Earnings projections suggest that the performance gap esp. in the Eurozone, but this will need to be confirmed between US and EUR equities will narrow © Allianz 2024 Sources:
Slide 53: Balancing fundamentals and valuations in a mid- to late-cycle phase
EQUITY MARKETS Balancing fundamentals and valuations in a mid- to late-cycle phase Despite the expected earnings recovery market and The fundamentals-valuations-uncertainty trifecta leads economic dynamics suggest a mid-late cycle phase us to envisage ~9% total returns for 2025 -2026 © Allianz 2024
Slide 54: Tight and holding, corporate credit's resilience
CORPORATE CREDIT Tight and holding, corporate credit’s resilience amid high valuations Robust demand and a resilient sector mix have Credit spreads can sustain current levels as long as the decoupled corporate credit from equity performance dominant sectors continue to deliver © Allianz 2024 Sources
Slide 55: Corporate spreads nearing their tightness limit
CORPORATE CREDIT Corporate spreads are nearing their tightness limit with minimal space for further compression Both investment grade and high yield spreads are Across the rating spectrum, the high yield-investment closing in on their lowest levels in 20 years grade spread continues to tighten © All
Slide 56: Corporate spreads to hold within range
CORPORATE CREDIT Corporate spreads to hold within range, facing constrained compression and volatility threats Earnings should drive slight compression, but spreads Equities and corporates likely to stay detached in 25- are set to hover near current levels with heightened 26, with spreads resisting
Slide 57: EM HC spreads under upward pressure, LC yields to fall
EMERGING MARKETS EM HC spreads under upward pressure, LC yields to continue falling HC spread ticked up post-election but remains Local currency returns to continue benefiting from stretched; LC yield trending downwards falling yields, but likely to face FX pressure Performance breakdown (y/y) 30% F
Slide 58: Currency weakness weighs on total returns of EM equities
EMERGING MARKETS Currency weakness weighs on the total returns of EM equities, especially for LatAm EM continues to underperform DM, with LatAm FX continues to drag on total returns experiencing an especially significant drop as USD strengthens 130 DM EM EM Asia EM EMEA EM LatAm 50% Total return in
Slide 59: China's policy deliveries and earnings recovery for EM equity
EMERGING MARKETS China’s policy deliveries and earnings recovery on top of the list for EM equity performance in 2025 Chinese stimulus hopes may lift EM equities again, Downward earnings revision of Chinese equities have but weak fundamentals and headwinds limit upside consistently outweighed upward
Slide 60: Commercial real estate stabilizing in the US
REAL ESTATE Commercial real estate stabilizing in the US but structural changes weigh on office space Change in CRE prices in the US and EZ Change in CRE prices by property type in the US (y/y) (y/y) 20% US EZ 30% Office Retail Industrial Multifamily 15% 20% 10% 5% 10% 0% 0% -5% -10% -10% -15% -20%
Slide 61: © Allianz 2024
© Allianz 2024