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Economic outlook for 2025 shows uncertainty and challenges loom

The economic landscape for 2025 appears uncertain, largely shaped by the new U.S. administration and the policies it may implement. Concerns about potential tariffs on major international trading partners, particularly China, and stricter immigration policies could contribute to inflationary pressures and slower economic growth, according to forecasts from various economists. However, some predict a stronger economic performance, highlighting the mixed views on the year ahead.


Photo: Dreamstime.

Seth Carpenter, chief global economist at Morgan Stanley, suggested that the outcome of the U.S. election will usher in policy changes that will ripple through the global economy. 'The drivers of growth are shifting in the U.S.,' Carpenter said. 'We expect the economy to slow in 2025, particularly as tariffs and immigration restrictions are fully realised.' He anticipated that the initial round of tariffs would target imports from China, which would eventually expand to other countries, increasing costs for sellers that would ultimately be passed onto consumers through higher prices, slowing down consumer spending and impacting production and employment.

RSM, a Chicago-based consulting firm, echoed these concerns, warning that the combination of rate cuts, tax cuts, and new tariffs could disrupt the economy further. 'Tariffs, immigration and fiscal policies are key areas of concern,' said RSM's Chief Economist Joe Brusuelas. While some benefits could arise from rate cuts already initiated in 2024, they cautioned that a "hot" economy might prompt the Federal Reserve to reverse course on these cuts.

Despite the broader economic uncertainty, Goldman Sachs remains cautiously optimistic, forecasting a 2.5% increase in U.S. real GDP growth for 2025. 'Productivity growth in the U.S. continues to outpace other regions, and this is a key reason why U.S. GDP growth is expected to outperform,' said Jan Hatzius, chief economist at Goldman Sachs. The firm also anticipates global GDP to grow at 2.7%, with growth led by China (4.5%) and India (6.3%).

Within the furniture industry, however, which has yet to fully recover from the slump following the COVID-19 pandemic, expectations are more subdued. Concerns about tariffs leading to price increases could deter consumers from purchasing large-ticket items like furniture. A recent survey by Furniture Today revealed that the industry continues to face challenges in passing on these cost increases without significant pushback from consumers, who remain hesitant to spend on discretionary purchases. Retail closures throughout 2024, including major players like American Freight, Conn's/Badcock, and Big Lots, have further diminished shopfront numbers, resulting in shrinking sales and sales forecasts.

Furniture Today Strategic Insights projects a modest 0.3% growth in furniture store sales in 2025, while consumer spending on furniture and bedding is expected to increase by 1.7%, following a 3% decline in 2024. A key concern is cost fatigue, particularly in relation to non-discretionary services like utilities, which is likely to curb spending on discretionary items such as furniture. 'Value-driven decisions will be increasingly important in consumer spending,' said Satyam Panday, S&P Global's Chief Economist, pointing to the need for affordability and practicality as key drivers for furniture purchases in the near future.

Despite these challenges, there remains cautious optimism regarding the housing market, which has historically influenced furniture sales. Skylar Olsen, chief economist at Zillow, expects more favourable conditions for homebuyers in 2025, with more inventory expected to ease affordability pressures. Mortgage rates, while unlikely to return to the lows seen in previous years, are projected to remain in the 5-6% range, making homeownership more accessible for some buyers. However, the issue of affordability among younger buyers continues to limit entry into the housing market.

Danielle Hale, chief economist at Realtor.com, noted that home sales growth for 2025 is expected to remain modest, driven more by broader economic factors than new federal policies. 'Mortgage rates will likely hover around 6%, and home prices will rise by around 3.7%,' she said.

In conclusion, while the broader economic outlook for 2025 is expected to show modest growth, the furniture industry, in particular, faces several headwinds, including tariff-induced price increases and shifting consumer spending patterns. Homeownership and housing sector dynamics remain key areas of focus, as they could indirectly support some growth in furniture sales if conditions improve. However, overall, economic uncertainties will likely continue to shape the year ahead.

Source: www.furnituretoday.com

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