2025 Business Economic Outlook

The U.S. economy is set to end 2024 on a strong note – growth is stable, inflation is slowing, and interest rates are declining. Now, business leaders are turning their attention to the economic situation in the upcoming year.

Analysts predict that many of the economic conditions of the current year will continue into the new one. They also project recovery in a key industry that could impact businesses. By studying the most recent projections, leaders can gain an advantage when crafting their strategy for the new year.

Moderate Growth Expected in Global and U.S. Economies

The International Monetary Fund [IMF] estimates that global growth will remain stable at 3.4% in 2025. This figure includes upgraded estimates for U.S. growth which were offset by downgraded estimates for other advanced economies. The IMF describes this growth rate as “stable but underwhelming.”

In the U.S., the OECD estimates that GDP will fall from an estimated 2.6% in 2024 to 1.8% in 2025. This is contradictory to the FOMC’s estimate of 2.0% GDP growth for both 2024 and 2025. However, both estimates project GDP to be relatively stable and below the 2023 rate.

Stable economic growth often coincides with predictable consumer spending and stability in other aspects of the economy. These factors can give businesses a steady baseline from which to build their output and sales strategies.

Interest Rates Are Expected to Fall Further

The FOMC lowered interest rates in September for the first time in the current cycle and further reduced them at November’s meeting. Their expectations released in September showed an end-of-year Fed Funds Rate of 4.4% in 2024 and 3.4% in 2025. This signals one more rate cut in the current year followed by a full percentage point reduction throughout next year.

Lower interest rates often lead to higher spending by consumers and businesses. More spending means higher sales and stronger stock prices for businesses.

Inflation Projections Show Slower Price Growth

One of the driving forces behind the FOMC’s decision to lower interest rates was slowing inflation. The PCE inflation rate – the Fed’s preferred gauge of prices – fell from 2.4% in January to 2.1% in the latest report. The most recent decline brought the inflation rate close to the Fed’s target of 2.0% and below their estimate for year-end 2024.

The FOMC’s projections show inflation declining throughout 2024 and 2025. These declines are expected to bring the inflation rate to the long-run average of 2.0% in 2026.

Slower price growth in the coming year could help businesses better forecast their costs for inputs and manage their expenses. In this way, lower inflation could be a boon for businesses – especially those who have suffered under the high inflation of the past several years.

A More Favorable Labor Market Ahead

Labor market gains slowed to a trickle in the latest report and the unemployment rate sits at 4.1%. By historical standards, this is still a low unemployment rate, but, for businesses, it is a welcome change from the extremely tight labor market of the past several years.

The FOMC projects that the labor market will weaken further, and the unemployment rate will peak at 4.4% in the short term. It is expected to remain at that level through the end of 2025.

Slower hiring and higher unemployment combine to make hiring less costly for businesses. In addition, more candidates will be seeking jobs and companies will have their choice of employees – rather than in the past several years when many companies have been forced to aggressively compete for qualified help.

Commercial Real Estate Could Rebound

The commercial real estate sector has experienced turmoil in the last few years with high interest rates and changing tenant preferences. In 2025, this could change.

A Deloitte survey of high-ranking members of real estate owner and investor organizations across 13 countries showed that 88% of respondents expect revenue to increase in 2025. This is a significant deviation from last year’s survey when 60% expected declines.

On the other hand, the prospects of a rebound come with their own risks. Respondents said that the largest potential challenges to a rebound are elevated interest rates, cyber risks, tax policy, and the cost of capital.

A stronger commercial real estate market could strengthen the financial position of companies that own their buildings. It could also drive profitability across the commercial real estate sector and add to overall economic growth.

Business Conditions Should Continue to Improve in 2025

Overall, estimates show a positive economic outlook for businesses in the coming year. Slowing inflation and a more favorable labor market stand to reduce expenses for many businesses. Additionally, lower interest rates could promote strong spending and, consequently, higher revenue.

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