AMP expects the ASX 200 to reach 8,800 by the end of next year but warned that a series of challenges will lead to a volatile 2025, with a 15 per cent correction “highly likely” during the year.
“Global and Australian shares are expected to return a far more constrained 7 per cent in the year ahead,” AMP’s chief economist, Shane Oliver, said in his latest market update.
“Stretched valuations after two strong years, the ongoing risk of recession, the likelihood of a global trade war and ongoing geopolitical issues will likely make for a volatile ride in 2025 with a 15 per cent correction somewhere along the way highly likely.”
Elaborating on key threats for next year, Oliver said the “worry list” is long and maybe even more threatening than in 2024, given the uncertainty President-elect Donald Trump’s policies pose.
Threats, he said, include less attractive share valuations, uncertainty around how much central banks will cut rates, and the risk of recession, particularly in the US but Australia, too, if the RBA leaves rates too high for too long.
Moreover, the chief economist flagged the risk of a global trade war, as well as ongoing risks for the Chinese economy, which could be amplified as Trump ramps up tariffs.
Geopolitical risks, too, remain elevated, Oliver said, with escalating tensions in Ukraine, Iran, and China, European political uncertainty, and upcoming Australian and German elections potentially impacting oil prices and public spending.
“These considerations point to at least a high risk of increased volatility after the relative calm of 2024,” the economist said.
But there are reasons for optimism, he said, particularly considering inflation is likely to continue to trend down as labour markets and commodity prices continue to ease, pushing central banks to press on with cutting rates.
On the Reserve Bank of Australia in particular, Oliver said by May, the central bank will kick off its cycle reversal, taking the cash rate down to 3.6 per cent by year end.
Regarding the predicted slowdown in global growth, Oliver assured it is likely to strengthen in the second half helped by rate cuts.
“Australian growth is likely to edge up to 1.8 per cent helped by rising real wages, tax cuts and rate cuts and this should see profit growth return,” he said.
Besides his expectations for the ASX 200, Oliver said bonds are expected to deliver modest returns as inflation slows and central banks begin cutting rates, while unlisted commercial property is tipped to see improving returns.
Australian home prices, on the other hand, may weaken further in the next six months before rebounding with lower interest rates, potentially rising 3 per cent by 2025.
Cash and bank deposits may offer over 4 per cent returns, though these are likely to slow as the cash rate drops, Oliver said. Meanwhile, he predicted the Australian dollar will fluctuate between US$0.60 and US$0.70, influenced by interest rate differentials and trade tensions.
