Overview
In March 2025, escalating geopolitical tensions and the implementation of new tariffs significantly impacted global financial markets. The United States imposed a 25% tariff on imports from Canada and Mexico, and increased tariffs on Chinese goods from 10% to 20%, leading to immediate retaliatory measures from these countries. These actions triggered substantial volatility in global markets, with major indices such as the S&P 500 and Nasdaq Composite experiencing notable declines. Investors grew increasingly concerned about the potential for stagflation—a combination of rising inflation and slowing economic growth—as central banks grappled with appropriate policy responses. The heightened uncertainty surrounding international trade policies contributed to a cautious investment climate and dampened economic growth projections worldwide.
The UK Spring Statement 2025, delivered by Chancellor Rachel Reeves on 26 March, outlined key economic and fiscal policies amid ongoing global uncertainties. The Office for Budget Responsibility (OBR) revised GDP growth forecasts downward, reflecting economic challenges. Key announcements included increased defence spending, welfare reforms, and a £3.25 billion Transformation Fund for public services. Infrastructure investment was also a priority, with £13 billion pledged over five years. The statement aimed to balance economic stability with long-term growth initiatives.
Looking at the performance of major asset classes in March 2025, global financial markets experienced significant volatility, primarily driven by escalating trade tensions resulting from the announcement of new tariffs by the U.S. President Donald Trump, geopolitical uncertainties, and heightened fears of a global trade war. Major indices such as the S&P 500 and Nasdaq Composite recorded their worst quarters since 2022, with the S&P 500 suffering a 5.63% decline in March alone. Japanese and European markets also faced steep declines, with Nikkei 225 and both Euronext 100 and FTSE 100 fell roughly 4% and 2%, respectively. DJ Islamic market index, the benchmark for Shariah compliant equities, fell 6%. Conversely, safe-haven assets like gold reached new record highs, appreciating by over 9% in March only, reflecting investor caution. Additionally, the weakening U.S. dollar and concerns over stagflation further contributed to the turbulent market environment. The following snapshot provides a detailed breakdown of the performance of different asset classes in March 2025 and year-to-date.
Market Snapshot
News & Key Events in March
UK
• The annual inflation rate in the UK fell to 2.8% in February 2025 from 3% in January, below market expectations of 2.9%, though in line with the Bank of England’s forecast.
• The Bank of England voted 8-1 to keep the Bank Rate at 4.5% during its March meeting, as policymakers adopted a wait-and-see approach amid stubbornly high inflation and global economic uncertainties.
• On 26 March 2025, Chancellor Rachel Reeves delivered the UK’s Spring Statement, addressing key areas such as economic growth, public services, and national security. The Office for Budget Responsibility (OBR) revised the GDP growth forecast for 2025 from 2.0% to 1.0%, citing global uncertainties, including increased tariffs between the US and other countries. The government announced a significant increase in defence spending, committing to raise expenditure to 2.5% of GDP by 2027, with an additional £2.2 billion allocated to the Ministry of Defence in the coming year. In terms of public services, a £3.25 billion Transformation Fund was introduced to support fundamental reforms over the next three years. Welfare changes were also highlighted, with the universal credit standard allowance set to rise from £92 per week in 2025/26 to £106 per week by 2029/30, while the health element will be reduced by 50% and frozen for new claimants. Additionally, stricter tests for Personal Independence Payments (PIP) will be implemented from November 2026. The OBR estimates that these welfare measures will decrease planned government spending by around £4.8 billion in 2029/30. To support long-term economic growth, the government pledged £13 billion in capital infrastructure investment over the next five years, including funds for training 60,000 additional construction workers and allocating £2 billion towards social and affordable housing. Despite these initiatives, the OBR forecasts modest annual growth of 0.5% in real household disposable incomes over the coming years
US
• The annual inflation rate in the US eased to 2.8% in February 2025 from 3% in January, below forecasts of 2.9%.
• The Fed kept the federal funds rate unchanged at 4.25%-4.5% during its March 2025 meeting, extending the pause in its rate-cut cycle that began in January, and in line with expectations. Policymakers noted that uncertainty around the economic outlook has increased but still anticipate reducing interest rates by around 50 bps this year, the same as in the December projection.
• The US economy expanded an annualized 2.4% in Q4 2024, slightly higher than 2.3% in the previous estimates, primarily reflecting a downward revision to imports. Meanwhile, GDP growth forecasts were revised lower for this year to 1.7% from 2.1% seen in December. Growth projections were also revised down for 2026 (1.8% vs 2%) and 2027 (1.8% vs 1.9%). In contrast, PCE inflation is seen higher in 2025 (2.7% vs 2.5%) and 2026 (2.2% vs 2.1) but the forecast was kept at 2% for 2027.
• The University of Michigan consumer sentiment for the US was revised lower to 57 in March 2025 from a preliminary of 57.9, and well below 64.7 in February. Consumer sentiment fell for a third straight month to hit the lowest since November 2022 as consumer’s expectations worsened for personal finances, business conditions, unemployment, and inflation.
Europe
• Annual inflation in the Euro Area eased to 2.2% in March 2025, the lowest rate since November 2024 and slightly below market expectations of 2.3%, a preliminary estimate showed.
• The ECB lowered the three key interest rates by 25 basis points, as expected, reducing the deposit facility rate to 2.50%, the main refinancing rate to 2.65%, and the marginal lending rate to 2.90%. This decision reflects an updated assessment of the inflation outlook and monetary policy transmission.
• Germany unveiled a landmark €500 billion infrastructure fund aimed at revitalizing sectors such as transportation, energy, education, and digitalization over the next decade. This initiative represents a significant shift in fiscal policy, as the government plans to amend the constitutional “debt brake” to accommodate increased borrowing, particularly for defense and infrastructure spending. The proposed reforms include exempting defense expenditures exceeding 1% of GDP from borrowing limits and increasing the structural deficit allowance for states. Additionally, €100 billion of the fund is earmarked for climate action, bolstering the country’s commitment to environmental sustainability. This comprehensive stimulus package aims to address long-standing infrastructure deficits and stimulate economic growth in Germany.
China
• China’s consumer prices dropped by 0.7% yoy in February 2025, surpassing market estimates of a 0.5% decline and reversing a 0.5% rise in the prior month. This was the first consumer deflation since January 2024, amid fading seasonal demand following the Spring Festival in late January.
• The People’s Bank of China (PBoC) maintained its key lending rates unchanged for the fifth consecutive month in March, in line with market expectations. The one-year loan prime rate (LPR), a benchmark for most corporate and household loans, was held at 3.1%, while the five-year LPR, a reference for property mortgages, remained at 3.6%.
• The Caixin China General Manufacturing PMI rose to 51.2 in March 2025, up from February’s 50.8, surpassing expectations of 51.1. This marked the highest reading since last November, with output growth accelerating due to a sustained rise in new orders amid improved demand conditions.
Others
• The annual inflation rate in Japan fell to 3.7% in February 2025 from a 2-year high of 4.0% in the prior month, amid a sharp slowdown in prices of electricity (9.0% vs 18.0% in January) and gas (3.4% vs 6.8%) following the government’s reinstatement of energy subsidies.
• The Bank of Japan (BoJ) kept its key short-term interest rate at around 0.5% during its March meeting, maintaining it at its highest level since 2008 and in line with market expectations.
• The annual inflation rate in Canada jumped to 2.6% in February of 2025 from 1.9% in the previous month, the highest in eight months, sharply above market expectations of 2.2% and ahead of the Bank of Canada’s forecast of 2.5%.
• The Bank of Canada cut its key interest rate by 25bps to 2.75% in its March decision, as expected and previously signaled, to mark 225bps in rate cuts since the start of its loosening cycle in June 2024
• The annual inflation rate in Russia quickened for the fourth month to 10.1% in February 2025, from 9.9% in January, as anticipated, and remained well above the central bank’s 4% target.
• The Bank of Russia held its key interest rate at the record high of 21% in its March 2025 decision, in line with expectations, and signaled that it is unlikely that further tightening is needed for disinflation.
• Bitcoin remained largely flat in the month at around $84000 per token.
Disclaimer
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