Financial markets and the economy 2025

On the face of it, 2025 was an uneventful year – at least in the real economy. Global growth was forecast at 3.2% and now appears to have landed right there. US growth was projected at 2.0% and probably reached, well, 2.0%. Euro area growth was predicted to be around 1.2%, which now looks like another rare forecasting success.

In the US, inflation was expected to hover around 2.4–2.7%, with expectations of 2.1–2.3% in the Euro area and 3.0–3.3% in Norway and 2.0–2.3% in Sweden. As predictions go, these qualify as spot on. While rates weren’t cut exactly as expected going into the year, it seems these economies still developed as most forecasters envisioned.

The funny thing is that the year truly offered a series of economic shocks. The largest of these were, arguably, the tariff hikes first announced by US President Donald Trump on 2 April – his so-called Liberation Day. During the following days, we experienced the biggest stock market decline since the pandemic panic of 2020.

Of course, after only one week, Trump backtracked substantially. This in turn set the stage for a powerful rally. The S&P 500 ended 2025 with a total return of 17.9%, with the MSCI World Index a full percentage point higher. The Scandinavian markets followed suit, with Denmark a lone exception due to poor performance for heavyweight Novo Nordisk.

For once, European stock markets outpaced the US, with STOXX Europe 600 delivering 20.6%. Part of the reason was probably bad news from the US, which was becoming steadily less supportive of Ukraine. In realisation that Europe would have to shoulder more of the burden, many European countries decided to increase their defence spending. Germany, in particular, broke further with its typical fiscal austerity to increase defence and public spending. This reinforced belief in European economies and markets. We have seen this before in financial markets: Seemingly bad news leads to a positive outcome.

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