Economic and Market Overview
In the first quarter of 2025, global financial markets experienced significant volatility driven by a confluence of macroeconomic factors, escalating tariffs, and geopolitical tensions. The re-inauguration of President Donald Trump on January 20 marked the resurgence of aggressive trade policies, including the imposition of 25% tariffs on imports from Mexico and Canada effective March 4, and a subsequent increase of tariffs on Chinese goods to 20% on the same date. These protectionist measures prompted retaliatory tariffs from affected nations, exacerbating fears of a global trade war and contributing to market instability. Additionally, the announcement of further tariffs on steel, aluminium, and automobiles intensified concerns over supply chain disruptions and inflationary pressures. Collectively, these developments led to significant declines in major stock indices and heightened investor anxiety, underscoring the profound impact of policy decisions on economic performance during this period.
Macroeconomic picture
In the first quarter of 2025, major economies exhibited varied macroeconomic performances influenced by factors such as trade policies, inflationary pressures, and geopolitical tensions. The US economy faced significant challenges due to the implementation of broad tariffs by President Donald Trump, including a minimum 10% tariff on most imports. These measures contributed to a contraction in GDP, with the Atlanta Federal Reserve forecasting a 2.8% quarter-on-quarter decline, a stark reversal from earlier growth projections. Inflationary pressures intensified, and labour market also showed signs of strain, as nonfarm payrolls increased by only 135,000 in March, down from 151,000 in February, with the unemployment rate remaining at 4.1%.
The euro area GDP growth stagnated 0% in the fourth quarter of 2024 compared to the 0.4% growth in the previous quarter, and an annual increase of 0.9%. Inflationary trends were concerning, as the rate climbed to 2.5% in January 2025, although fell to 2.2% in March, surpassing expectations and complicating the European Central Bank’s monetary policy decisions. Energy prices notably contributed to this uptick. Meanwhile, China’s economic growth picked up over the previous quarters amid implementation of fiscal stimulus measures, including a 10 trillion-yuan bond swap by local governments, however, these efforts were insufficient to offset the economic impact of property sector crunch. Fitch projected a slowdown in China’s economic growth to 4.4% in 2025 from 5.0% in 2024, influenced by ongoing property sector challenges and declining export prospects due to U.S. trade measures. Overall, the first quarter of 2025 highlighted the significant impact of trade policies and geopolitical tensions on the macroeconomic indicators of major economies, with rising inflation and slowing growth posing challenges for policymakers worldwide.
Update on ‘Trump tariffs’: This review covers update in the first quarter (01 January to 31 March 2025); however, the world of tariffs is changing rapidly so here is a quick update on this issue. As of 09 April 2025, China announced it would raise its reciprocal tariffs on US goods to 84%, up from 34% they announced few days ago, as tensions between the world’s two largest economies escalated. This move followed President Trump’s imposition of tariffs on several countries, including a massive increase in levies on Chinese goods to 104%, which is 50% addition to 54% already announced. Many other countries including Japan are taking a bit cautious approach to get a better deal on trade with US. However, the European Union on Wednesday voted to approve its first set of retaliatory measures to counter tariffs imposed by the US on steel and aluminium as well as tariffs of 20% on almost all its US imports. The EU’s commissioner for trade and economic security said Monday that the bloc would start collecting a first tranche of tariffs on US imports from April 15, with a second set of measures following on May 15. Vietnam offered to reduce tariffs on US goods to 0% to avoid trade disputes with the US. However, this is a developing story, and numbers can change significantly in coming days and weeks.
Financial markets performance
Looking at the performance of major asset classes in Q1 2025, global financial markets faced a turbulent start to the year and provided a mixed performance, marked by heightened volatility and widespread declines across major indices. Key drivers included renewed geopolitical tensions, particularly from US tariff escalations under President Trump, rising inflationary concerns, and slower than expected economic growth in major economies. The S&P 500 posted its worst quarterly performance since 2022 falling roughly 4.3%, while Asian markets also struggled amid uncertainty over trade disruptions and monetary policy direction. Japan’s Nikkei 225 plummeted by 10.7% in Q1. The benchmark for Shariah compliant equities DJ Islamic markets index declined just under 6%. Investor sentiment was further shaken by fluctuating energy prices and ongoing conflicts in the Middle East. On the other hand, Europe’s Euronext 100 and the UK FTSE 100 ended the quarter on the positive note with 6.78% and 6.1% rise, respectively, backed by the heavy defence spending initiatives and Germany’s fiscal stimulus packages. Overall, risk aversion dominated market behaviour, with capital flowing into safe-haven assets like gold and government bonds. Gold was the best performing asset, rising by 18.9% while DJ Sukuk index increased by 2.3%. Finally, the UK GBP appreciated by 3.23% against US dollar in Q1.
Performance of Global Assets Q1 2025
In the first quarter of 2025, the US 10-year Treasury yield exhibited notable fluctuations influenced by various economic and geopolitical factors. At the start of the year, anticipation of President Donald Trump’s inauguration and his prospective fiscal policies led to expectations of higher inflation and increased deficits, pushing the 10-year yield to approximately 4.78% by early January. However, as the quarter progressed, concerns over potential tariffs and a weaker-than-expected GDP growth rate of 2.3% in the fourth quarter of 2024 prompted investors to seek safer assets, resulting in a decline in yields. By late March, the yield had decreased to around 4.23%, reflecting heightened demand for US Treasuries amid economic uncertainty. This trend underscores the bond market’s sensitivity to fiscal policy developments and broader economic indicators during this period.
10-Year Treasury Yields
During the first quarter of 2025, Bitcoin’s performance was notably weak, marking its poorest first quarter showing since 2018.The cryptocurrency declined by approximately 11.8% during this period, closing at around $82,549 by March 31. This downturn was influenced by escalating macroeconomic tensions, particularly the reintroduction of US trade tariffs, which unsettled markets and weighed heavily on risk assets like Bitcoin. Despite reaching an all-time high of $108,099 in January, Bitcoin’s value decreased by about 20% from this peak by the end of March. This period highlighted Bitcoin’s sensitivity to broader economic policies and market sentiments.
Geopolitical situation
In the first quarter of 2025, the geopolitical landscape was marked by significant developments influencing global economic and political dynamics. On January 20, Donald Trump was inaugurated as the 47th President of the United States, initiating a series of debatable policies. Notably, his administration proposed imposing substantial tariffs on major trading partners, raising concerns about a potential global trade war reminiscent of the 1930s. These tariff threats contributed to heightened volatility in global financial markets, with investors bracing for potential economic repercussions. Concurrently, the U.S. adopted a more aggressive stance in its foreign policy, issuing threats against nations like Iran and Russia, which could significantly impact energy markets. In East Asia, South Korea faced internal political turmoil as its Constitutional Court deliberated on the impeachment of President Yoon Suk Yeol, leading to widespread protests and uncertainty. Meanwhile, preliminary talks between the US and Russia aimed at ending the conflict in Ukraine signalled potential shifts in international alliances and power structures. Collectively, these events underscored a period of geopolitical tension and realignment, with profound implications for global stability.
In the Middle East, tensions between Israeli forces and Hezbollah escalated despite a ceasefire agreement established in November 2024. Israel’s decision to retain military positions at five strategic locations in southern Lebanon beyond the agreed-upon withdrawal deadline of January 26 led to heightened friction. Lebanese officials, including President Joseph Aoun, demanded a complete Israeli withdrawal, asserting that any remaining presence constituted a violation of Lebanese sovereignty. In response, Hezbollah’s leadership warned of potential actions if Israel did not comply with the withdrawal terms. In February, Israel agreed to a full withdrawal by February 18, following international pressure and negotiations. However, the situation remained volatile, with both sides expressing grievances over ceasefire violations and the potential for renewed conflict.
Key News & Events in Q1 2025
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 after delivering a 25bps cut in February, as policymakers adopted a wait-and-see approach amid stubbornly high inflation and global economic uncertainties.
• The British economy expanded 0.1% on quarter in Q4 2024, the same as in the first estimate, and following a flat reading in Q3.
• 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.
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 annualised 2.4% in Q4 2024, slightly higher than 2.3% in the previous estimates, primarily reflecting a downward revision to imports.
• US 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, down from 2.3% in February and 2.5% in January, 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 in March after delivering a similar cut in January, 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
• The Gross Domestic Product (GDP) in the Euro Area stagnated 0% in the fourth quarter of 2024 over the previous quarter.
• In the 2025 German federal election held on February 23, the conservative Christian Democratic Union/Christian Social Union (CDU/CSU), led by Friedrich Merz, emerged as the largest party, securing 28.5% of the vote and 208 seats in the Bundestag. Meanwhile, outgoing Chancellor Olaf Scholz’s SPD had its worst performance in decades, only securing 16.4% of the vote.
• 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 defence and infrastructure spending. The proposed reforms include exempting defence 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 Chinese GDP grew by a seasonally adjusted 1.6% in Q4 2024, accelerating from an upwardly revised 1.3% rise in Q3 and marking the strongest quarterly increase since Q1 2023.
• China implemented a series of stimulus measures in the first quarter aimed at revitalizing its economy amid escalating trade tensions and internal challenges. The government set a GDP growth target of around 5% for the year and increased its budget deficit target to approximately 4% of GDP, the highest since at least 2010. To support this, China planned to issue 1.3 trillion yuan in ultra-long-term special treasury bonds and an additional 500 billion yuan to bolster large state-owned commercial banks. Furthermore, the People’s Bank of China injected 800 billion yuan into the banking system through outright repos in March to maintain ample liquidity. These actions reflect Beijing’s commitment to stabilizing the economy and addressing both domestic and international economic pressures.
• In March 2025, Chinese electric vehicle manufacturer BYD unveiled a groundbreaking fast charging technology capable of delivering up to 400 kilometres (248 miles) of range with just a five-minute charge. This advancement aims to rival the refuelling time of traditional combustion engine vehicles and is set to debut in BYD’s upcoming Han L sedan and Tang L SUV models. This development positions BYD ahead of competitors like Tesla, whose fastest chargers currently offer a 275-kilometer range with a 15-minute charge
To learn more about our investment approach and how we can help you, book a free initial consultation with one of our Financial Advisers.
Disclaimer
This article is for information only. Please do not act based on anything you might read in this article. Past performance is not a reliable indicator of current or future returns. This article contains general information only and does not consider individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy to any person in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it would be unlawful to market such an offer or solicitation.
When you access a shared link of third-party websites, you are leaving our website and assume total responsibility and risk for your use of the third-party websites. We make no representation as to the completeness or accuracy of information provided at these websites nor do we endorse the content and information contained on those sites.