The final months of the year are shaping up to be decisive for financial markets, given economic uncertainties, geopolitical tensions and rapid changes in technology. Whether we are talking about the level of investment in artificial intelligence, the monetary policy of Japan and the Federal Reserve, or the divisions in the West, these may pose risks to the markets in the coming months.
6 major risks could influence the global economic outlook. Archive photo
An analysis carried out by XTB Romania specialists points out the six most important risks to be followed until the end of 2025, which could outline the economic and investment perspectives in the following period.
1. Concerns about AI
One of the areas that will be closely scrutinized in the upcoming quarterly results concerns the AI capital spending of the tech giants. Any decrease in investment could be a negative event that would penalize entities in the sector and consequently the market. In addition, the possibility of a company in the entire value chain “derailing” or the launch of alternatives in China that diversify revenues could affect the performance of the industry.
2. Corporate debt
Anti-immigration policies increase labor costs or reduce productivity, while tariffs put pressure on margins, which reduces company profits. On average, small business corporate debt is refinanced every five years, which means we're at a critical juncture. Lower income and higher financing costs can be an explosive combination.
3. Japan
This may be the most eloquent example of the problems that could arise in the future. The government has no real capacity to repay its debt productively. The only way it can pay is by printing money, which would drastically devalue the yen and raise bond yields, causing significant losses for current holders such as insurers or pension funds.
Furthermore, after the Bank of Japan's last meeting, it seems likely that before the end of the year we will see further interest rate hikes, along with a reduction in their positions, which also equates to tight monetary policy.
Japan's public debt has reached 235% of GDP.
4. Federal Reserve
Possible increases in inflation could “tie the hands” of the institution led by Jerome Powell in the coming months. Right now, the market is assigning a 95% probability of another interest rate cut. However, the weakness of the dollar, immigration policies and tariffs could add further inflationary pressures. In fact, 72% of CPI (consumer price index) components are rising above the Fed's target, and we're talking about the highest average here since the previous peak in 2022.
5. Western divisions
The war in Ukraine and the conflict in Gaza have exposed divisions within the West. While the US and Europe maintain military and financial support for Kiev, fatigue is growing over the costs of war. At the same time, the response to the Middle East crisis is generating tensions, with three G7 countries recognizing the State of Palestine, against the US position.
6. The decline of the European banking sector
The sector which, along with defence, has led the progress in Europe, may now face a ceiling.
The banking sector in Romania is undersized, being represented by only 3 names from the local banking field: BRD, which registers an advance of approximately 16% since the beginning of the year, Banca Transilvania, the largest player on the Romanian market, which grows by over 23% since the beginning of the year and Patria Bank, which appreciates by over 36% since the beginning of this year.
For a comparison term, the BET index has appreciated by just over 35% since the start of the year, while the European banking sector (EURO STOXX Banks index) has net outperformed by almost 62% since the start of the year.
