2025: resilience, lower interest rates, tariffs and a market that has learned to live with uncertainty
December 16, 2025
By Mario Catalá
There are only two weeks left before we close out 2025, a year that will be marked, in terms of financial markets, by the coexistence of three elements that had a significant impact on their development: macroeconomic growth that, overall, held up better than expected at the start of the year; a monetary policy that gradually shifted towards accommodation (albeit at different rates across regions); and a political and trade shock that reshaped expectations, increased market volatility and forced investors to re-evaluate risk premiums and valuations. In this context, global equity markets, far from collapsing, have maintained a very positive tone, closing the year very close to their highs, supported by still-growing corporate profits and expectations of lower interest rates.
Below is a summary of the main economic and financial events that we have experienced in 2025, with a special focus on the United States, Europe and China:
United States
In the United States, the year began with considerable economic uncertainty and moved into a second half that was more influenced by the federal shutdown and tariff fluctuations. Since the beginning of the year, the Fed had admitted that it was in no hurry to cut rates, with inflation rising slightly in January. This backdrop foreshadowed a divergence in policy from Europe, with the US monetary authority defending the continuation of a restrictive bias in the face of a robust labour market and latent inflationary risks.
The second quarter brought the first major political blow from Donald Trump, with Washington imposing (and subsequently escalating) tariffs, prompting a corresponding response from China. The immediate consequence was increased volatility, a deterioration in confidence surveys and a rethinking of the short-term path of prices and growth, which translated into a very significant fall in equity markets, with the S&P 500 losing nearly 15% in just two weeks. Although the market had priced in multiple Fed rate cuts, the institution itself decided to remain cautious due to the potential risk of a rise in inflation, stemming from higher import costs and a possible energy shock.
As summer arrived, the narrative of ‘robust but nuanced’ growth took hold. The probability of recession fell sharply, US indices recovered and surpassed previous declines, and the S&P 500 traded more than 30% above its April lows, giving way to an autumn that added an unusual ingredient: the prolonged federal shutdown that limited the publication of key statistics and added a layer of operational and fiscal uncertainty. Despite this, PMIs remained in expansion, GDP estimates rebounded strongly, and the market continued to discount a cycle of mild cuts, conditional on employment performance and the trajectory of core inflation. The Fed implemented 25 basis point cuts in October and December, placing the benchmark rate in the 3.50%–3.75% range, with market debate pivoting towards whether there will be one or two additional cuts in 2026. At the same time, the discussion on technology valuations gained focus, as corporate profits and margins had to justify high multiples in a context of financial costs that, although falling, were still far from the zero rates of the previous decade.
Europe
Europe experienced 2025 with prudence and stability, with macroeconomic conditions gradually improving and monetary authorities more willing to cut rates than their US counterparts. The start of the year confirmed economic weakness in manufacturing, with the two main drivers of the old continent, Germany and France, experiencing serious difficulties, while service indicators showed some resilience, remaining in expansion territory, with southern European countries (led by Spain) leading the way in this regard.
Despite low economic growth, employment surprised with its resilience, with the unemployment rate at historic lows in the first third of the year. In this context, the ECB made a series of 25 basis point cuts in winter and spring, bringing the deposit facility down to 2.25% and then to 2%, before pausing to assess its objectives and avoid overreacting to the rise in energy and wage prices. The German fiscal shift was the most significant development on the European front: the discussion to raise spending above €1 trillion and relax the debt limit pointed to a regime change that could boost investment in defence and infrastructure and, by extension, boost the eurozone in 2026. Sentiment surveys (ZEW) captured this shift with visible improvements, even as retail consumption remained weak and political differences (particularly noticeable in France) introduced noise in the short term. In terms of prices, Europe showed clearer stabilisation than the US, with headline CPI around 2% and core CPI holding steady at 2.3%–2.4%, giving the ECB room to pause after the summer and assess whether to make a final adjustment in 2026.
China
China navigated the year between an industry that maintained reasonable growth rates, domestic demand that once again became the unresolved issue, and foreign trade that suffered ups and downs due to the tariff tug-of-war. Nevertheless, GDP remained above the government’s target and the labour market showed stability, with exports increasing significantly in the second half of the year and expectations growing for new government stimulus measures in 2026 aimed at reviving services and closing the consumption gap.
Clearly, geopolitics has been an important factor affecting the three economic blocs. Washington’s tariff standoff had immediate repercussions: higher import costs, risks of passing on to final prices, and companies postponing investment decisions, which increased the uncertainty premium. The conflict in the Middle East added an energy dimension, with the threat to the Strait of Hormuz reigniting global inflation fears and pushing crude oil prices sharply higher from their lows for the year. In this environment, monetary authorities weighed the trade-off between sustaining the cycle and containing prices, opting for gradual movements and messages of ‘data dependency’ so as not to fuel market volatility, which was already very high in this international context.
In short, 2025 was the year in which global markets held their own: the United States reaffirmed its resilience amid administrative shutdowns and valuation debates, Europe cemented cautious stability supported by a more flexible ECB and the potential German fiscal turnaround, and China went through a mixed cycle where stimulus measures and a focus on domestic consumption paved the way for 2026.
The key to the next phase will continue to be the trajectory of inflation (especially core inflation in the US), the speed and magnitude of rate cuts, and the resolution or channelling of tariff disputes. With earnings still expanding and high levels of liquidity, especially among large-cap companies, the market has shown (at least throughout 2025) that it can coexist with uncertainty, something we do not often see.