Inequality frames the year
The gap between the haves and the have-nots will continue to be a powerful theme in the U.S. economy in 2025, according to RBC’s Chief Economist, Frances Donald.
“High-income Americans and large corporations continue to do very well and support the broad economy,” Donald notes. “They’re benefiting from high stock prices and relative resilience to high interest rates.
“On the other hand, low-income Americans and small businesses continue to struggle. This theme will continue to be a dominant element of the U.S. economic story.”
High spend is double-edged sword
With the U.S. on course to see its highest-ever level of debt to GDP in 2025, government spending is another useful lens through which to view the economic narrative.
Donald says this can be seen from two perspectives: “It’ll put a floor under economic growth, and keep the economy relatively resilient.
“But it also means it’ll be hard for inflation to fall back down to that 2% target.”
Demographics pile on the pressure
A third critical theme for the U.S. economy is retirement rates. This is often seen as a long-term factor, but Donald points out that it will emerge as highly significant in 2025.
“There’ll be three retirees for every one entrant looking for work in the U.S. economy,” she explains.
“That’s going to mechanically keep the unemployment rate down. It’s also going to put pressure on immigration policies, as they come to play a huge part in how much labor is available.”
All these factors will combine to have an impact on prices, Donald warns.
“Put this story together and we do expect the U.S. economy will remain relatively resilient over the course of the year,” she says. “But inflation will remain a sticky problem, making many Americans continue to feel uncomfortable.”
“We do expect the U.S. economy will remain relatively resilient over the course of the year, but inflation will remain a sticky problem.”
Frances Donald, Chief Economist, RBC
