Years follow a familiar pattern. Geopolitics is inevitably declining, the US economy remains strong and economic growth in Europe is not showing remarkable signs of improvement. This is the point of departure for 2025.
The impossibility of peace
Numerous peace treaties have been made throughout history, sometimes in respect of the one and same war. Old-world wars had a beginning and an end. Modern wars do not. A war is a continuum of various developments that can be characterised by a number of names, such as conventional war, hybrid war or cyber war and financial war. If a peace treaty is made, who should it be signed with and what are the things that can actually be agreed upon? This is probably one of the biggest challenges in 2025.
A promise of peace, or at least an end to the war, may be in sight. The US President-elect Donald Trump has promised to end the war in Ukraine quickly. It will be interesting to see which of the Ukrainian wars he will stop and which not. Since there are several wars going on, it may be possible to find one that can be successfully ended. What is more important, however, is which wars will continue.
The picture of the economy
The economic landscape differs greatly between Europe and the United States. This difference cannot be explained by the success of technology companies, although their importance is clearly reflected in stock markets. More than anything else, the difference in economic growth is explained by the success of the services sector and its growing profitability, as well as the difference in employment rates. People work more in the United States than in Europe. A service society thrives on the provision of services. In Europe, growth relies on production and exports, but there is little demand for neither at the moment.
Inflation is contained
The surge in inflation is over. Accelerated inflation was triggered by the rise in energy prices and a number of other developments in 2021 and 2022. Central banks were compelled to tighten monetary policy. Now this is no longer necessary, and it is expected that by next summer central bank policy rates will fall close to normal or sufficiently low levels. It would be a good thing, as it would allow us to respond to new surprises that will inevitably come up every year.
Forgotten population growth
Economies are geared for growth. In this growth-oriented environment, people tend to look back to past periods which showed economic growth figures that we can now only dream of. However, population growth and ageing populations are inevitable facts. The prerequisites for growth are not the same as they used to be a few years ago. Measures being taken to maintain some level of growth are, as such, massive. The challenge for Europe is not only to achieve growth but also to build realistic expectations and perceptions. In the future economy, more choices will have to be made to divide the pie many times over. Governments will have limited options, whereas citizens will have unlimited expectations.
James Bond needed
2025 will not be the year of Robin Hood, although his time will come at some point in the future. A Robin Hood era would require a higher degree of civilisation than what we are experiencing now. 2025 is the year of James Bond. We need him because the new world order is too knotty and complicated. The latest Bond film was called "No Time to Die", and many thought that the 2021 release would be his last. After that, no more peace in Europe. I wish he would return and put the world in a better shape. To ensure the victory of good over evil, we need 007 to come back.
In conclusion
The current view of the economy includes a lot of optimism. Stock prices have been increasing at an above-average rate. The rise of US technology companies has been a source of wonder for everyone. The valuation indicators are flashing red, making it tempting to issue warnings. Any strong bull market always involves the risk of eating into the following year's returns. This is what is happening now.
However, a lot of things are all right in the economy. By contrast, geopolitics is doing sufficiently badly to make 2025 an exciting year. But excitement is not what we are hoping for. There are great expectations that some measure of progress towards peace will be made. An interim peace or cease-fire are not enough to make the wish list come true.
Writer is VER's CEO Timo Löyttyniemi
