Source: Canaccord Wealth, Bloomberg – 01/04/2024 to 31/03/2025.

University of Michigan (UoM) Consumer Sentiment Index – a monthly survey measuring consumer confidence, a key economic indicator gauging consumer sentiment towards the economy and their financial situation.

The Atlanta Fed GDP Now forecast is a real-time model that provides an estimate of US GDP growth based on current economic data

Theme 4: European economy

Simultaneously, we are seeing a slightly better economic outlook in Europe, with plenty of fiscal support to come. We suspect that economic activity will remain low, but positive through the year, which should be sufficient to support asset markets.

There is also uncertainty over the path for inflation. Clearly, we are in a much better place than we were in 2022/23, but the disinflationary progress has stalled in recent months and there is some evidence that inflationary pressures are percolating in the global economy once more. Economic distortions, increased defence spending and trade tariffs drive inflation uncertainty, which we view as a key risk for later in 2025 and we have mitigated against such a risk in our portfolios.

Nonetheless, we still suspect that the major central banks globally will be inclined to cut interest rates further as 2025 progresses: we anticipate two rate cuts in both the UK and the US this year. However, much will depend on how the economic picture and inflationary pressures unfold.

Getting a head of steam – an economic boost

We might finally see some form of temporary ceasefire in Ukraine. A lasting peace would serve to cool the levels of tension globally. At the same time, the changing US-Europe relationship has forced European politicians out of their complacent slumber, spurring them to start increasing their defence spending. With the notable exception of Germany, there is no money available to ramp up this new required investment, so it will mean yet more debt, but it might provide a much needed and timely boost to the stagnant European economy.

2025: progress derailed, but not abandoned

Our view at the start of the year was that portfolios would make positive progress again in 2025, building on the recovery that started in Autumn 2022. This view came with an appreciation that the slow and steady path was precarious and that both inflationary flare-ups and growth disappointments could easily knock the recovery off course. Sweeping tariffs announced on ‘Liberation Day’ have done just that and caused a global rout in risk assets with global equities down -14.2% year-to-date at the time of writing (7 April).

Even so, some of our original expectations are playing out. Gains have started to broaden out geographically, away from the US and technology, with early signs of relative improvement in Europe and in more defensive sectors. As we anticipated fixed income has been a ballast in portfolios helping to offset volatility. The backdrop is no longer one of steady normalisation; it is now one of recalibration under a new, more uncertain regime. From uncertainty comes opportunity and the action we had taken in anticipation of such a scenario has given us confidence in our ability to capture such emergent opportunities.

Finding the right way forward

With everything we have discussed in this edition of Outlook, as well as all the subjects we couldn’t find space for, it is obvious that an investor’s path through 2025 is a step into ‘The Great Unknown’. At the same time, there is much to be optimistic about rather than just much to fear.

We urge against excessive swings in sentiment and pursue a pragmatic approach. As long as we can continue to find sound investments – at appropriate valuations – we will remain confident, rather than complacent, about the prospects of positive outcomes from portfolios. Despite all those ‘big wheels turning’ at the moment, this remains very much the case today.

We are here to help

If you would like to discuss how your own portfolio is set up to navigate this outlook and still meet your long-term goals, please get in touch with your usual Canaccord account executive or email: CGWM_UK@canaccord.com

For further information on any of the terms used in this article please see our glossary of investment terms.

The case for getting in the ring with UK equities

As we review the historic performance history of UK equities, we discuss why our client portfolios can still benefit from investing closer to home.

Discover our accompanying article to Investment Outlook April 2025.