Forecasts for real gross domestic product (GDP) growth next year in major western advanced economies diverged further in the last month of 2024. 

A monthly survey of analysts by forecasters Consensus Economics about G7 and Western European economies shows a splintering of growth prospects between sluggish ‘core’ European economies and expanding ‘periphery’ countries like Spain and the US, where the economy and stock market have for years outperformed rich country peers on the other side of the Atlantic.

Spain is set to be the fastest expanding major advanced economy in 2025 with estimated real GDP growth of 2.2%, found Consensus Economics’ December 2024 survey, a notable improvement from a consensus of 1.8% recorded in January. Real GDP forecasts in 2025 for the US also increased by 0.3 percentage points to 2% between the monthly economist surveys at the start and end of 2024. 

By comparison, GDP growth predictions for Germany and France in 2025 worsened over the year, with the two economies expected to expand next year by just 0.4% and 0.8%, respectively. Next year’s GDP forecasts for Japan and the UK were just above 1% and only marginally improved in 2024.

Forecasts are regularly updated to reflect the latest information on each country’s political scene and economic policies, but divergence in advanced economies is not a new trend. In 2024, real GDP growth in both Spain (3%) and the US (2.7%) is expected to be higher than all other G7 economies and three times the 0.8% rate in the Eurozone as a whole. 

Spain’s strong economic performance has been fuelled by a combination of immigration, tourism, public spending and FDI, the last of which has surged in industries like renewable energy, automotive and data centres. But many economists are closely watching developments in the US, where Republican President-elect Donald Trump will take office in January 2025 promising to slash business taxes and implement protectionist policies.

Phillip Hubbard, director of Consensus Economics, tells fDi that the US is entering a “very optimistic” phase due to the recent easing of interest rates, growing financial markets and “more clarity” on potential future policies given the Republican majority in both houses of Congress.

Ben May, director of macro forecasting and analysis at Oxford Economics says that “we expect strong US performance compared with Europe due to a combination of more favourable fiscal policy and stronger fundamentals for consumer spending”. But Mr Trump’s proposed tariffs and geopolitical developments like the war in Ukraine “may temper [US] growth at the margin elsewhere”, he added.

Weak growth forecasts in France and Germany are a reflection of political uncertainty and tight fiscal policy that is expected to constrain public spending in both countries. France’s former prime minister Michel Barnier was ousted on December 5 after a vote of no confidence over his belt-tightening budget. Germany is also set for early elections in February 2025 after Chancellor Olaf Scholz lost a similar vote.

“Beyond fiscal issues, Germany is experiencing a period of structural decline in its manufacturing sector due to competitiveness challenges,” said Adrian Prettejohn, an economist at Capital Economics. Preliminary data from fDi Markets shows greenfield FDI into Germany has fallen sharply in 2024.

While there is not a simple direct relationship between economic growth forecasts and FDI, economists note that these GDP dynamics could have a bearing on corporate investment decisions. “Weak growth and uncertainties over tariffs are likely to prompt manufacturers in Europe and Japan to be more wary about investing,” said Mr May of Oxford Economics. 

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