Year-end Reflections and Global Economic Outlook for 2025

Economic

Summary:

As 2024 comes to a close and we look ahead to 2025, Esther Lee Rosen, senior director of communications in the Global Economy and Development program, sat down with Vice President and Director Brahima S. Coulibaly to discuss the economic outlook moving forward.

Brahima S. Coulibaly (BSC): It is hard to talk about 2024 without placing it in the context of the past four years when the resilience of the global economy was tested by a string of overlapping shocks beginning with the COVID-19 pandemic, supply chain disruptions, high inflation, extreme weather events, and geopolitical conflicts, among others.

Viewed in this context, the global economy in 2024 performed better overall than many had feared around this time last year. Global growth likely stabilized this year, with a soft landing now in clear view. Declining inflation rates created space for central banks to begin lowering interest rates, easing financial conditions and providing some welcome relief to households, businesses, and even countries struggling with debt repayments.

ELR: What are some of the most memorable contributions the Global Economy and Development program has made in 2024?

BSC: The program has had another great year of numerous impactful research and engagements with the aim of addressing many of the challenges.

In the current environment of heightened geopolitical tensions, we have been very attentive to the issues of global economic cooperation and multilateralism. We convened a group of 40 scholars from over 25 institutions around the world to propose a reform agenda for a renewed international financial architecture. The resulting report provided valuable input to the United Nations’ Summit of the Future, and other global processes such as the T20/G20. The report offers innovative solutions including the reform of multilateral development banks, financing for climate and economic development, global cooperation on taxation, and global financial safety nets.

Scholars in our Global program also led the charge to advance climate mitigation and adaption—particularly from the perspective of climate finance at COP29 in Baku. Our scholars launched a very well-received and widely quoted landmark report calling for a significant increase in financing for climate change.

During the United Nations General Assembly (UNGA) week, scholars from the Center for Sustainable Development played a pivotal role in high-level international forums and drove impactful discussions on strengthening sustainable development and international financial systems. The center director—Senior Fellow John W. McArthur—delivered a TED-style talk at the U.N.’s SDG Moment in front of member states and civil society leaders, urging intensified global collaboration to meet the 2030 targets, He also moderated a panel featuring Haitian Prime Minister Garry Conille on advancing the Sustainable Development Goals (SDGs).

Our global education scholars continued their work in support of transforming local, national, and international education ecosystems. Their annual symposium, aimed at advancing solutions to the most pressing challenges in education, was hosted in partnership with Special Olympics International and the Global Partnership for Education and focused on inclusion of learners with intellectual and developmental disabilities. It was a very well attended symposium that convened ministers of education from several countries, as well as other policymakers and advocates.

ELR: What should we expect next year in terms of the global economic outlook?

BSC: My expectation is that the global economy will continue to improve at roughly the same pace as this year, but with a much larger uncertainty due to the myriad risks and challenges including those stemming from frictions among nations that can cause growth to slow significantly and possibly fall into recession.

Although global growth stabilized, it did so at a relatively low rate compared to the average over the past decade. The aggregate number for global growth also masks heterogeneity across regions and countries. Moreover, inequality has risen to uncomfortable levels. To boost growth, structural reforms and investments are needed to revive productivity growth, and public policies should aim to promote broadly shared prosperity. Despite reductions in inflation rates, the increase in the cost of living over the past four years has eroded purchasing power of households.

Sovereign debt levels remain uncomfortably elevated, and several countries, particularly in the developing world, are grappling with debt vulnerabilities. Risks from climate change loom large, with 2024 setting the record for the hottest year ever recorded. Extreme weather events, from floods in China and Europe to prolonged droughts in Africa and South America, and accelerated glacier loss further underscore the rapid pace of global warming. Importantly, geopolitical conflicts, including the great power competition between the U.S. and China and wars and conflicts between Russia and Ukraine and in the Middle East, risk deepening global supply chain vulnerabilities and global geoeconomic fragmentation. For example, the number of trade restrictions has tripled in recent years.

Finally, the year 2024 has been dubbed the “voters’ year” as at least 70 countries, representing nearly half of the world population, held national elections. Arguably the most consequential for the global economy and world affairs writ large is the outcome of the U.S. presidential elections during which former President Donald Trump staged a remarkable comeback. Some of the policy proposals that he campaigned on, if carried out, will accelerate protectionism, the fragmentation of the global economy, and accentuate frictions among nations with potentially large negative spillovers.

ELR: Do you have any parting thoughts that you would like to share?

BSC: Next year could mark the beginning of a tumultuous time in relations among nations with, potentially, large negative spillovers in important areas of global cooperation from trade to security cooperation.

I believe that we are in the twilight of the current world order and that a reconfiguration is underway. However, it is less clear what the new world order will look like. The next few years will accelerate reconfiguration of the world order and bring more clarity on its future. For our part, we will ramp up our effort, working with our partners, to propose ideas and solutions to ensure that global economic cooperation is at its best for the benefit of all nations

My best wishes to all our partners for a cheerful holiday season and happy new year 2025.

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CEPR

Economic

Economists play a crucial role in informing policies on pressing issues such as inequality, education, and public health. Over the past few decades, the discipline has undergone a ‘credibility revolution’, emphasising rigorous programme evaluation techniques to establish causal relationships. This shift has enhanced the credibility of economic analyses, but could, on the other hand, have had broader implications for what could broadly be considered marketable research in economics.

The rise of causal inference methods

The credibility revolution is characterised by the adoption of empirical strategies designed to strengthen causal claims. Seminal works by Angrist and Krueger (1991) and Card (1990) introduced natural experiments and instrumental variable techniques to address endogeneity concerns, laying the groundwork for more credible causal inference. Subsequently, methods like difference-in-differences (DiD), regression discontinuity design (RDD), and randomised controlled trials (RCTs) have gained prominence, signalling a paradigm shift toward ‘design-based’ empirical strategies (Angrist and Pischke 2010, Pischke 2021).

To assess the evolution of these methods, in a recent paper (Garg and Fetzer 2024) we analysed over 44,000 working papers from the NBER and CEPR spanning 1980 to 2023. Our analysis reveals a significant increase in the use of causal inference methods over the past four decades. Figure 1 illustrates the proliferation of key empirical methods used in these papers.

To visualise how these methods contribute to constructing economic narratives, we use knowledge graphs to map the relationships between concepts in economic research. Figure 2 presents an example of such a knowledge graph from Banerjee et al. (2015), illustrating the causal impact of introducing microfinance in India.

In this knowledge graph, the authors examine how access to microfinance influences a range of outcomes, from business creation to household expenditure patterns. The high number of causal edges and unique paths indicates a rich and interconnected causal narrative, reflecting the complexity of economic relationships explored in the study. Such detailed mappings can help understand how empirical methods contribute to advancing knowledge in economics.

Publication success versus citation impact

Despite the methodological advancements, there is an ongoing debate about the implications for research dissemination and influence. A particular concern may be that the credibility revolution has given rise to a specific style of economic research that may put more emphasis on the methodological toolbox, rather than the underlying question that policymakers and decisionmakers have to contend with on a day-to-day basis (Jiménez-Gómez et al. 2019). Further, assessing what is economically significant, vis-a-vis what merits consideration on statistical grounds may lead to publication bias, disadvantaging studies that, for example, produce null findings (Chopra et al. 2022) or generate a broad range of theoretically consistent, high dimensional empirical patterns on a broad range of variables of interest that may be jointly significant when viewed as being embedded in a causal chain or a graph.

To explore this, we use knowledge graphs to represent the relationships between economic concepts in each paper. We quantified narrative complexity through measures such as the number of unique causal paths and the depth of causal chains. Our findings suggest a nuanced relationship between methodological rigor, narrative complexity, and research impact.

Figure 3 shows that papers with a higher proportion of causal claims are more likely to be published in ‘top five’ economics journals. Additionally, papers introducing novel causal relationships and engaging with less central, specialised concepts have a higher likelihood of top-tier publication.

Yet, when examining citation counts – a proxy for academic influence – we observe a different pattern. As depicted in Figure 4, while the complexity of a narrative positively correlates with citation counts in top journals, the use of causal inference methods does not necessarily lead to higher citation impact once published. Instead, papers focusing on central, widely recognised concepts tend to receive more citations.

This divergence suggests that while top journals prioritise methodological innovation and complex narratives, broader academic impact is driven more by the relevance of research topics. This raises important questions about the direction and priorities of economic research, highlighting the need for a balance between methodological rigor and engagement with central economic debates (Deaton and Cartwright 2016, Pischke 2021). There is a concern that prominently published research in leading journals could encourage a shift in research focus into areas that may be of marginal broader interest, possibly creating deep ‘rabbit holes’ that may subsequently generate a self-reinforcing publication dynamic, hindering innovation more broadly.

Challenges in replication and data accessibility

The increased emphasis on sophisticated empirical methods brings challenges related to replication and research transparency. For example, Chopra et al. (2022) find a substantial perceived penalty against null results in the publication process, which can distort the scientific record and hinder cumulative knowledge. Such biases can lead to an overrepresentation of significant findings, inflating false-positive rates and undermining the reliability of published research (Brodeur et al. 2016).

Moreover, we observe a rise in the use of proprietary data, with the proportion of papers using private company data doubling from about 4% in 1980 to over 8% in 2023. The use of private data in fields like finance and industrial organisation exhibit the highest proportions. Proprietary data can provide granular insights, but it can also raise concerns about replicability and transparency. Limited access to such data hampers other researchers' ability to verify findings or explore alternative hypotheses (Jiménez-Gómez et al. 2019). Further, the provision of research access to proprietary private data may be skewed towards academics with a broad profile, which could further exacerbate the inequalities in the profession in terms of research access (Fetzer 2022). Alternatively, companies could strategically use (publicly funded) researchers to produce private knowledge goods, outsourcing research and development. Alternatively, they may leverage the credentials of academics or higher education institution to foster brand recognition or to boost corporate social responsibility credentials strategically (Bounie et al. 2021).

Deaton and Cartwright (2016) caution against overreliance on randomised control trials (RCTs) and emphasise the importance of understanding the mechanisms behind observed effects. They argue that without a theoretical framework, findings from RCTs may not be generalisable to other contexts, limiting their policy relevance. The generalisability and scalability of experimental results are crucial for informing policy decisions (Jiménez-Gómez et al. 2019).

Implications for the economics profession

These findings have significant implications for the economics profession. The trade-off between methodological rigor and broader academic impact suggests the need for a more holistic approach to research. As Jiménez-Gómez et al. (2019) argue, experimental economists must tackle the generalisability and applicability of their evidence, ensuring that findings contribute meaningfully to theory and policy discussions. This involves embracing diverse methodologies and focusing on questions with substantial policy relevance (Deaton and Cartwright 2016).

Encouraging transparency and the reporting of null results is essential to maintain the integrity of the scientific process. Miguel et al. (2014) advocate for practices that enhance credibility and accessibility, such as pre-registration and data sharing. Addressing the challenges posed by proprietary data requires balancing the benefits of rich datasets with the need for verifiable and replicable research. Initiatives promoting open science and replication studies can help mitigate these issues (Jiménez-Gómez et al. 2019, Brodeur et al. 2016).

Furthermore, there is a growing recognition of the limitations of focusing solely on statistical significance. As Brodeur et al. (2016) highlight, an overemphasis on significant results can lead to ‘p-hacking’ and inflate false-positive rates. Adopting robust statistical practices and valuing studies based on their methodological soundness and relevance, rather than just significant findings, can mitigate these issues. Emphasising the economic significance and practical implications of research findings is vital for advancing the field (Chopra et al. 2022).

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PIIE

Economic

On the campaign trail, Trump promised tariffs on all imports from 10 to 20 percent, with a special rate of 60 percent on all imports from China. Goods likely to see the largest proportional price increases are those facing currently low applied tariff rates and those that are sourced disproportionately from China.

Analysis of current trade flows and tariff rates indicates that machinery and electronics and electrical machinery will face the largest import tax burden if the incoming administration implements Trump’s promised duty hikes. These two sectors account for a large share of US total imports, currently face low tariff rates, and are disproportionately made in China. Imports in these industries include both capital goods and producer intermediate inputs and final goods, which implies higher costs and disruptions to American supply chains and manufacturers.

If tariffs are levied on all US trade partners as well as China, large flows of machinery, electronics, transportation equipment, and chemicals will also be subject to new taxes, with much of the burden falling on US-based businesses. Consumers, however, will also see higher costs for imported final goods, including electrical devices, toys and sporting goods, vegetable and meat products, and imported foodstuffs.

HIGHER TARIFFS ON IMPORTS FROM CHINA

Given broad domestic consensus on the need to reduce US dependence on China, and ready access to tariff-levying authority gained from the 2018 investigation of forced technology transfer, we expect President-elect Trump to act quickly to impose new tariffs on imports from China. On the campaign trail, he proposed tariffs of 60 percent on all imports from China.

As shown in table 1, China is the dominant supplier to the United States of toys and sports equipment, provides 40 percent of US footwear imports, and is the source of about one-quarter of US electronics and textiles and apparel imports. It ships 18.3 percent of machinery and mechanical appliances imported by the United States. Of these products, electronics and electrical machinery from China comprise the largest US import bundle by value, totaling $119.9 billion in 2023 (figure 1). Within this broad sector, China is the dominant supplier of many individual products.

No Trade Tax is Free: Trump’s Promised Tariffs Will Hit Large Flows of Electronics, Machinery, Autos, and Chemicals_1

A tariff of 60 percent on China would be a major shock to international goods markets. After the US-China trade war of 2018–19, 62 percent of US imports from China are currently subject to an average tariff rate of 16 percent, well above most favored nation (MFN) rates but far below the rate promised by Trump on the presidential campaign trail.

Some products remain lightly taxed, as seen in figure 1. Three categories of imports currently face average tariff rates below 10 percent—toys and sporting equipment, minerals, and electronics and electrical machinery. Indeed, partly because of US dependence on Chinese-based production, many products in the electronics sector were largely shielded from trade war tariffs, including cell phones, laptops, and smartwatches. There are few alternative locations for large-scale production of these devices, despite movements in supply chains since the trade war, and a 60 percent tariff would feed through to higher consumer prices for these devices as well as for video gaming consoles and many other consumer electronics. No Trade Tax is Free: Trump’s Promised Tariffs Will Hit Large Flows of Electronics, Machinery, Autos, and Chemicals_2

No Trade Tax is Free: Trump’s Promised Tariffs Will Hit Large Flows of Electronics, Machinery, Autos, and Chemicals_2

Consumers will also feel the impact of tariffs on everyday purchases of toys and sporting goods, footwear, and textiles and apparel. Of these sectors, the United States is most reliant on China for purchases of toys and sports equipment. While toys seem like products for which substitute sellers would be readily available, China maintains a dominant position in toy production for several reasons, including its not-easily-reproduced capacity to produce materials that meet US product safety standards. Toys and sports equipment are currently very lightly taxed, as shown in figure 1, and a 60 percent tariff almost certainly will be felt directly by American households.

US businesses will also feel the pain of higher tariffs on China. They are end-users for many of the electronics products and electrical machinery discussed above. But with US imports from China heavily weighted toward capital equipment and intermediate goods used by US-based companies, new taxes on imports of machinery and mechanical appliances will certainly raise costs for American manufacturers. US imports of these products from China, which totaled $81.4 billion in 2023 (second only to electronics), would be subject to a 49-percentage point tariff increase if Trump levies the promised “flat 60” import tax rate.

HIGHER TARIFFS ON ALL PARTNERS EXCEPT CHINA AND FTA PARTNERS

The United States purchased 13.6 percent of its 2023 merchandise imports from China and another 38.3 percent from free trade agreement (FTA) partners; the remaining 48 percent of American imports come from other sources and currently are taxed at MFN rates. As seen in figure 2, even a 10 percent tariff would be a significant increase in the tax rate applied to these purchases. Only three groups of imported products—textiles and clothing, footwear, and hides and skins—currently are taxed at MFN rates that exceed 10 percent (see figure 2). Nevertheless, tariff rates on these products from non-FTA partners are less than those currently levied on similar ones from China.

No Trade Tax is Free: Trump’s Promised Tariffs Will Hit Large Flows of Electronics, Machinery, Autos, and Chemicals_3

Trade with non-FTA partners includes large two-way flows with the European Union, the United Kingdom, and Japan. Purchases are concentrated in five physical- and human-capital sectors: chemicals, machinery, electronics and electrical machinery, transportation equipment, and miscellaneous manufactures (which includes precision instruments, as described in the appendix below). All would be subject to tariff rate increases of between 7.9 and 9.6 percentage points. The bulk of American imports of these products are used by US-based companies, who would be burdened by higher production costs even if they switch to domestic or alternative foreign suppliers.

HIGHER TARIFFS ON FTA PARTNERS

Almost 40 percent of US imports are sent from FTA partners. Existing tariff rates on these partners are close to zero, with only textiles and clothing and hides and skins facing rates above 1 percent, as seen in figure 3. Consequently, almost all flows would face about a 10-percentage point increase in the applied tariff rate if Trump carries through on his pledge to tax all US imports from FTA partners at the 10 percent rate. A particularly hard-hit sector will be transportation equipment, with 2023 US imports of $235.7 billion from these sources. Within North America, production of cars and trucks is highly integrated, with some vehicles crossing US borders multiple times before completion. It is not clear how these flows would be taxed. South Korea also supplies a significant share of US transportation product imports, and it has emerged as one of the largest foreign investors in the US automobile sector. Clearly, new tariffs on its exports to the United States will affect Korean manufacturers’ US-based operations. No Trade Tax is Free: Trump’s Promised Tariffs Will Hit Large Flows of Electronics, Machinery, Autos, and Chemicals_4

No Trade Tax is Free: Trump’s Promised Tariffs Will Hit Large Flows of Electronics, Machinery, Autos, and Chemicals_4

Also caught in the Trump tariff crosshairs are fuel products, machinery, and electronics and electrical equipment. As shown in table 1, FTA partners supply more than half of America’s fuel and transport equipment imports, about one-third of imported machinery, and one-fourth of imported electronics and electrical equipment.

America’s FTA partners are also important purchasers of US exports, particularly Canada, Mexico, and South Korea. They are likely to react to the proposed US deviation from FTA rates with tariffs of their own, reducing access into their home markets for US manufacturers, farmers, and ranchers.

US companies rely on FTA partners for trade that takes place under policy certainty—that is, with the expectation that tariffs will remain at negotiated low rates. Consequently, countries with whom the United States has signed an FTA have been seen as possible locations for production moved away from China. Tariffs that deviate from agreed rates in unpredictable ways make these decisions riskier.

WHAT IF TRUMP HITS MEXICO AND CANADA HARD?

Trump recently threatened tariffs of 25 percent on Mexico and Canada, countries that currently enjoy favored access to the US market thanks to the US-Mexico-Canada Agreement (USMCA). If these tariff increases were to be implemented, the largest flows affected would be those of transportation equipment and machinery, as seen in figure 4. Higher tariffs on USMCA partners would also tax large flows of electronics, miscellaneous manufacturers, and possibly fuel. Currently, the average US tariff applied to imports of goods from USMCA partners is generally below 1 percent.

No Trade Tax is Free: Trump’s Promised Tariffs Will Hit Large Flows of Electronics, Machinery, Autos, and Chemicals_5

USMCA partners are also important sources for the United States of vegetable products (47 percent of total imports), prepared foodstuffs (42 percent of total imports), and animal products (33 percent of total imports). Higher tariffs on Mexico and Canada will, therefore, put upward pressure on US food prices.

KNOWN UNKNOWNS

At this date, we know little about how the Trump administration will implement new tariffs. Fundamental policy designs have yet to be announced, including the tariff rates that will be ultimately applied, if tariffs will be phased in, if any products will be excluded, and whether FTA partners will be exempt. During the US-China trade war an exclusion process was set up allowing firms to apply for tariff exemptions for imports of Chinese machinery used in domestic manufactures. The bulk of these exclusions were allowed to lapse under the Biden administration. Given the blanket application of proposed tariffs and the high rates promised, any exemption process is likely to be swamped with petitions from US manufacturers.

With the United States acting against their interests and in violation of its World Trade Organization (WTO) and FTA commitments, retaliation from trade partners is to be expected. As experienced during the US-China trade war, retaliation can include not only new tariffs on US exports but also other restrictive commercial measures. China deployed countermeasures to US trade restrictions, including blacklisting foreign companies and applying export controls to curtail US access to critical supplies. With Trump’s promise to use tariffs as leverage in negotiations over other policy issues, such as migrant and drug flows, the response of US trading partners is likely to be influenced by the cost of meeting the Trump administration’s demands and by their commercial and security dependency on the United States.

NO TRADE TAX IS FREE

The only certainty is that new tariffs will be costly for the United States. While the ultimate impact on prices will depend on import demand and supply elasticities, research on the US-China trade war found resounding evidence of complete pass-through of tariffs to importers. The implication for the domestic market is that American consumers and firms will bear the effect of higher tariffs, with substantial costs for the average American household, and a burden that falls more heavily on lower income households. Moreover, well anticipated effects of protection are to stymie competition, resulting in higher prices for goods made in the United States as well as those that are imported. Even without the expected retaliation from its trading partners, higher US tariffs adversely affect American companies and exporters.

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Bruegel

Economic

The crisis at Northvolt, a Swedish battery maker that in November filed for Chapter 11 protection against creditors in the United States, is a warning for the European Union over the future direction of its industrial policy. After its founding in 2017, Northvolt – a partner in the flagship EU industrial policy initiative the European Battery Alliance – became a symbol of the EU’s clean-tech ambitions and its goal of creating a competitive, homegrown battery value chain. The company’s spectacular unravelling highlights in particular that the classic failures of state interventionism must be avoided. Lessons from Northvolt should be taken into account in the EU Clean Industrial Deal, to be proposed in February.

Northvolt aimed to capture 25 percent of Europe’s battery market by 2030 and it was given substantial public and private backing to do so. Institutional support in various forms came from the European Investment Bank (EIB), the EU and the German government. This public backing attracted major private investors, including Volkswagen, which became Northvolt’s largest shareholder in 2019 with a 21 percent stake, followed by Goldman Sachs with a 19 percent stake. A $5 billion loan secured by the company from the EIB, the Nordic Investment Bank, and 23 commercial lenders to finance the expansion of its plant in Skellefteå, Sweden, remains the largest green loan ever raised in Europe.

Northvolt’s expansion plans included gigafactories in Sweden and Germany, a plant in Canada and energy storage and recycling facilities in Poland. With $55 billion in secured orders, including substantial pre-orders from Volkswagen, BMW and other carmakers, Northvolt appeared well-positioned to become a market leader in Europe’s clean-tech revolution.

Cracks began to emerge however when the Skellefteå plant struggled to meet production targets, delivering less than 1 percent of its 16 GWh capacity in 2023. Know-how shortfalls became evident in the company’s heavy reliance on imports of Chinese cathode material and Chinese machinery, which would often require Chinese personnel to operate it. Northvolt ultimately lost orders and failed to secure new funding, leading to the Chapter 11 filing. Northvolt’s financial distress has sent shockwaves through Europe’s clean-tech landscape, with Germany exposed to a potential €620 million loss.

Europe’s vulnerabilities

The turmoil highlights systemic vulnerabilities for clean-tech in Europe: the persistent reliance on foreign suppliers for critical inputs, the challenge of managing the rapid scaling-up of manufacturing capacity and the difficulty of competing with established players in Asia.

It is important to recognise that while Northvolt was the first to reach commercial production, it is not the only European player in the battery sector. Others include Verkor backed by Renault, ACC supported by Stellantis, and PowerCo, on which Volkswagen has partnered with China’s Gotion. Northvolt’s difficulties risk sparking a wave of pessimism throughout the European battery supply chain, casting doubt on its overall viability. This sentiment risks triggering a ripple effect of investor hesitation, which could undermine the confidence necessary for the remaining ventures to thrive and impeding Europe’s collective clean-tech momentum at a critical juncture.

More broadly, clean industrial policy will be at the core of the EU policy agenda in the next five years. The European Commission has said it will propose in late February 2025 a Clean Industrial Deal that would combine horizontal policy measures aimed at creating a more conducive environment for clean-tech manufacturing and industrial decarbonisation investment, with vertical policy interventions targeting the development of specific sectors that are deemed strategic. In preparing the Clean Industrial Deal, the Commission should reflect on the lessons of the Northvolt experience.

Three lessons from Northvolt for the Clean Industrial Deal

First, Europe needs to reconcile its clean-tech ambitions with the realities of innovation. Building a competitive high-tech industry requires resilience and acceptance of risks. Northvolt’s story underscores the need for a culture that embraces experimentation and understands that setbacks are part of the process. Northvolt’s setbacks are part of the natural risks of innovation and not a verdict on the viability of Europe’s overall clean-tech goals.

In particular, to mitigate systemic risks and limit taxpayer exposure, the EU should foster a diversified ecosystem of ventures, rather than relying on ‘champions’. Supporting multiple innovative players is the way to build resilience, ensuring that the inevitable failures in the innovation cycle do not derail Europe’s broader industrial strategy.

Second, the EU approach to foreign competitors should be assessed carefully, with the possible development of a strategy that we would define as ‘derisking by embracing’. Europe should not focus on cultivating domestic champions in sectors in which Chinese, Korean or Japanese firms dominate in terms of both production costs and technological innovation. In relation to batteries, it is evident that Chinese firms dominate the global market, producing cheap but innovative cells.

Rather than shutting out foreign expertise, Europe should seek to build strategic partnerships with Chinese and other Asian firms, leveraging their knowledge and manufacturing efficiency, while offering market access in return. Of course, such partnerships should be governed by a solid regulatory framework to ensure European security interests – starting with cybersecurity. A ‘location over ownership’ approach – with production within Europe, regardless of ownership – could provide a pragmatic path towards Europe’s triple objectives of decarbonisation, competitiveness and resilience.

Third, vertical industrial policies sometimes fail and the approach cannot be fixed completely even by implementing our first two recommendations. European policymakers need to better match ambition with execution and should know that subsidising companies without strong framework conditions for them to thrive is a recipe for failure.

The failure to deliver on clean-tech projects such as Northvolt reflects a broader weakness in scaling-up clean technologies from innovation to large-scale production. Europe has excelled at funding research and piloting innovative projects but its approach often lacks clear incentives and the focus on measurable outcomes that is needed to support full-scale deployment. The right framework conditions for clean-tech investment – including difficult items such as lower energy prices and developing skills and capital markets – are fundamental prerequisites to achieve real progress.

The fact that the EU approved German assistance for Northvolt even when production scalability problems were emerging should also be a cautionary tale for the European Commission. Threats by companies seeking backing that they will leave Europe and move investment to the US might be correlated with operational problems. The threat to Europe’s position in clean tech owes mainly to a lack of a comprehensive industrial strategy equivalent to those of other major regions (Draghi, 2024). The US Inflation Reduction Act, which ties support directly to production milestones (such as generating a kilowatt-hour of battery capacity or a kilogramme of green hydrogen), and China’s state-directed industrial policies have created environments in which clean-tech ventures can thrive at scale. Europe now needs to design its own industrial policy approach, which should be granular and sector-specific.

A well-calibrated clean industrial policy must be dynamic, adaptable and rooted in realistic assessments of Europe’s comparative advantages. If these are lacking, partnering with foreign players – ‘derisking by embracing’ – is advisable. More than focusing on winning a global clean-tech race, the EU should focus on achieving its decarbonisation, competitiveness and resilience goals in the smartest and most-efficient manner possible.

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PIMCO

Economic

Central Bank

The European Central Bank (ECB) cut the deposit facility rate by 25 basis points to 3% at its December meeting, while its new staff projections – including inaugural 2027 estimates – now see inflation settling around target from Q4 2025 onwards. The rate cut makes sense in the context of weak growth and inflation projected to be at target next year (which supports a policy rate closer to neutral).

From a risk management perspective, with the policy rate at a still restrictive level of 3%, the ECB can potentially address any upside shocks through a slower pace of rate reductions going forward, while this latest rate cut may offer additional protection against downside risks. The ECB restated that decisions will remain on a meeting-by-meeting basis, and the data flow over the coming months will decide the speed and scale of monetary easing at future meetings.

Given uncertainty around the neutral policy range and still too high domestic inflation, the ECB is likely to continue moving policy rates towards neutral in a gradual fashion. Market pricing of a terminal rate of around 1.75% for the second half of next year remains broadly consistent with our estimates for a neutral policy rate for the euro area, and essentially represents a benign soft landing scenario. ECB President Christine Lagarde suggested a potential neutral range of 1.75%-2.5%.

While the rates market has more-or-less priced a cutting cycle in line with the ECB’s benign outlook, we see additional downside risks to growth following the U.S. election. As a result, we believe European duration offers reasonably priced downside mitigation, and we are currently overweight. As for the European interest rate curve, we continue to expect the back end of the interest rate curve to underperform shorter maturities due to rate cuts and rebuilding term premia.

A weak macroeconomic backdrop

We believe growth will continue to be weaker than the ECB is projecting. While hard data has been holding up better, surveys suggest that the euro area economy is broadly stagnating. Having hovered around 50 in recent months, the euro area composite purchasing managers' index (PMI) fell sharply in November, by around 2 points to 48.3. The most notable drop was in services, down 2.1 points to 49.5, putting it below 50 for the first time since early this year.

More broadly, incoming data increasingly raises the question of what might drive the projected economic expansion, as none of the demand components (consumption, investment or exports) have yet shown the strengthening the ECB expects. Particular question marks surround ECB staff projections for consumption-led economic growth, given the data is pointing to a substantial increase in the saving rate instead. Furthermore, the trade surpluses some member states, like Germany, run with the U.S. will likely face tariff challenges under the incoming U.S. administration, posing additional downside risks to growth. We believe growth will continue to be weaker than the ECB is projecting.

With regard to price developments, realized inflation remains above target, but stagnant economic growth, and fresh signs of a weakening labor market, should increase confidence that inflation is returning to target. Preliminary euro area inflation rose to 2.3% in November, driven by a moderation in the fall in energy prices and an increase in food inflation. Core inflation stood unchanged at 2.7%. Services inflation remains the biggest contributor to inflation, and stood at 3.9% in November, driven in part by recent high wage growth, which appears set to cool moving forward.

New staff projections

The latest staff projections, including inaugural 2027 numbers, show inflation at target from late 2025 onwards. For inflation to evolve in line with ECB expectations and durably converge to target, wage growth falling back to levels that are broadly consistent with 2% inflation remains the most important prerequisite. According to the new projections, the ECB expects growth in compensation per employee to average 3.3% in 2025, 2.9% in 2026 and 2.8% in 2027.

Wage moderation is key, even more so as productivity might turn out weaker than currently anticipated. Negotiated euro area wage growth picked up sharply in the third quarter, by 1.9% to 5.4% year over year. This was driven by volatility in German data, although given this was due to one-off delayed and backdated payments, it is unlikely to worry the ECB too much. The rest of the euro area was broadly stable.

More importantly, surveys point to slowing employment growth and a further moderation in the demand for labour. In addition, various forward-looking ECB surveys and wage trackers suggest a deceleration in wage growth, and the most recent wage negotiations in Germany were weaker than expected, increasing the ECB’s confidence that wage growth is going to decline in line with the projections.

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About half (54%) of U.S. adults say they know a great deal or a fair amount about personal finances. Another 33% say they know some about personal finances, while 13% say they don’t know much or know nothing at all, according to a 2023 Pew Research Center survey.

How we did this

Financial literacy has been associated with greater financial well-being. There have long been economic gaps between Americans of different backgrounds, and our survey also finds gaps in financial literacy:

Americans in households with upper incomes (72%) are more likely than those in households with middle (56%) or lower incomes (42%) to say they know at least a fair amount about personal finances.White adults (58%) are more likely than Black (50%) or Hispanic (41%) adults to say they know a great deal or fair amount. About half of Asian adults (49%) say the same. These differences by race remain regardless of income.Adults ages 50 and older (63%) are more likely than those 18 to 49 (45%) to say they are knowledgeable about personal finances.

On the other hand, about one-in-five Americans with lower incomes (22%) say they don’t know much or know nothing at all about personal finances. That’s a notably higher share than among those with upper incomes (4%). About a quarter of Hispanic adults (27%) say the same, higher than among Asian (17%), Black (14%) or White adults (8%).

Money management skills

U.S. adults have mixed confidence in their ability to perform various financial skills.

Most Americans (75%) say they are extremely or very confident in their ability to find their credit report. Smaller majorities say the same about creating a monthly budget to manage their finances (59%), creating a plan to pay off debt (57%) or saving money (56%).

By contrast, just 27% express confidence in their ability to create an investment plan to build wealth.

Americans’ confidence in these skills varies by income, race and age:

U.S. adults with upper incomes are more likely than those with middle or lower incomes to say they are confident in their ability to do each of these things.White adults are more likely than Black, Hispanic or Asian adults to say they are confident they can find their credit report, create a monthly budget and create a plan to pay off debt.Adults ages 50 and older are more likely than those 18 to 49 to have confidence in their ability to do each task except create an investment plan. Across age groups, similarly small shares express confidence they can do that.

In addition, about one-in-five U.S. adults (21%) are confident in their ability to execute every financial skill we asked about. Americans with upper incomes (40%) are more likely to say this than those with middle (20%) or lower incomes (13%).

Meanwhile, 13% of Americans are not confident in their ability to do any of these money management skills. Hispanic (21%), Asian (21%) and Black adults (17%) are more likely than White adults (8%) to say this. And 22% of those with lower incomes say this, compared with fewer than 10% of those with middle or upper incomes (9% and 5% respectively).

Roughly Half of Americans are Knowledgeable about Personal Finances_3

Where do Americans learn about personal finances?

In recent years, more experts have called for greater financial education during high school to help students prepare for their futures. Relatively few Americans have learned about this in school, our survey finds.

Among U.S. adults who are knowledgeable about personal finances, 49% say they learned a great deal or a fair amount about personal finances from family and friends. That is the highest share for any source we asked about. About a third or fewer learned about personal finances from other sources such as:

The internet (33%)College or university (27%)Media such as the news, documentaries or books (24%)K-12 schools (19%)

Learning about personal finances from family and friends is a relatively common experience across all major demographic subgroups. But there are notable differences for some other sources.

Internet

Asian adults (64%) are more likely than Hispanic (48%), Black (42%) or White adults (26%) to say they learned a great deal or a fair amount about personal finances from the internet.Adults ages 18 to 49 are more likely than those 50 and older to have learned about personal finances from the internet (50% vs. 19%).

Media

Asian (45%), Hispanic (36%) and Black adults (34%) are all more likely than White adults (19%) to have learned about personal finances from media.Younger adults are more likely than older adults to have learned about personal finances from media (29% vs. 21%).

K-12 schools

Adults with lower incomes (29%) are more likely than those with middle (18%) or upper incomes (10%) to say they learned about personal finances from K-12 schools.

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Gold technical analysis and key levels to watch

There is little doubt in our minds about the long-term gold outlook, even if the short-term direction looks somewhat murky. In fact, a short-term correction will make gold more attractive again after its big rally in 2024. A correction or continued consolidation will also help some of the longer-term momentum indicators such as the monthly Relative Strength Index (RSI) to work off their “overbought” conditions. Once some froth is removed, we will then be on the lookout for a strong bullish signal to emerge as prices near some of the potentially key support levels that we are monitoring.

Key levels and trades to monitor on gold

$2,075-$2,080: This range marks a key support zone on multiple long-term time frames, which served as major resistance between 2020 and 2023 and could act as a strong floor if prices retreat significantly. A drop to around this area would likely attract buyers who missed out on gold’s 2024 rally, reinforcing its long-term bullish outlook.

Of course, gold may not dip that deep to reach the abovementioned $2,075-$2,080 range, before it starts it next leg up. If we instead witness only a modest retracement, which is what we expect, followed by some consolidative price action, such that gold forms a long-term continuation pattern, then in that case we would look for a breakout strategy to turn tactically bullish on gold again.

$2,500: This is an additional support area we are monitoring with the 200-day moving average sitting about $25 below it.

$2,700 is the most significant near-term resistance level to watch in 2025, where the resistance trend of the potential bull flag pattern meets prior resistance. A clean break above here could target the 2024 high of $2,790.

$3,000 is the next big psychological level to watch should prices break to a new high in 2025. Expect at least some profit-taking around here.

Putting it all together

The 2025 gold outlook is shaped by a complex interplay of macroeconomic, geopolitical, and technical factors. While the early part of the year may present challenges, the metal’s long-term fundamentals remain strong. Inflationary pressures, central bank buying, and geopolitical uncertainties continue to support gold’s role as a strategic asset in diversified portfolios.

For professional investors and retail traders alike, navigating the gold market in 2025 will require a balanced approach. Monitoring key economic indicators, currency movements, and geopolitical developments will be essential for identifying opportunities and managing risks. With a cautious start expected, patient investors could see gold regain its shine, ultimately pushing toward the coveted $3,000 mark.

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