Investing.com -- As Donald Trump begins his second term as President, Citi analysts have outlined a complex and uncertain outlook for the U.S. economy and global markets in 2025.
While the U.S. economy remains robust, Trump's policies could introduce a mix of favorable and adverse shocks, Citi said in its note this week.
The U.S. economy, already the best-performing among major developed markets, has been buoyed by strong consumer resilience and a robust corporate sector.
However, Citi notes that Trump’s agenda, including potential tariff hikes, extended tax cuts, deregulation, and immigration curbs, could create new uncertainties.
"Our expectations for Trump’s policies add up to a complicated mix of favorable and adverse supply shocks and demand shocks," Citi said.
Tariff policies are said to be a key concern. Citi’s baseline assumes a 5% rise in the U.S. effective tariff rate, including a 10-15% increase on Chinese imports.
However, Trump has floated the possibility of more severe measures, such as a 60% tariff on China or across-the-board tariffs. While such measures could harm the U.S. economy and equity markets, Citi believes these threats may serve as leverage in negotiations.
For financial markets, the impacts will vary, according to the bank. Citi sees limited effects on U.S. equities under targeted tariffs but warns that broader measures could pressure corporate margins.
They note that international markets, particularly in Europe and China, could face sharper hits. U.S. yields, which have risen on concerns about deficits and inflation, could climb higher.
Uncertainty is expected to define Trump’s presidency. “Trump seems to thrive in a world of ambiguity,” Citi remarked, adding that nimble investors focused on economic fundamentals are best positioned to navigate 2025.
As global tensions rise, from tariff battles to geopolitical pressures, Citi advises staying alert to Trump’s unpredictable moves and their far-reaching implications.