Retrospective on first year back

THERE'S NO SHORTAGE OF DOWNSIDE RISKS FOR 2025, BUT DON'T EXPECT SUPPORTERS TO TURN ON HIM

- JEFFREY FRANKEL

Predictions about 2025 come with flashing caveats: no one can know what US President-elect Donald Trump will do, let alone how the rest of the world will respond. But one can speculate. Imagine it is January 2026.

As 2025 began, the mood of the American business community shifted. Some businesspeople had long harbored private doubts about Trump's anti-globalization campaign. But overall confidence began to fall when they came face to face with the possible consequences of cutting the US economy off from international trade and migration: sharply higher prices of imported products and labor shortages in some sectors.

Public anxieties multiplied as mysterious cyber-attacks caused a series of failures affecting US power infrastructure, and water and sanitation systems. Some childhood diseases like measles returned. From Inauguration Day, social media hesitated to highlight efforts by public health and information technology professionals to correct the accompanying misinformation.

Most dramatic in the first half of 2025 was the correction in the US stock market, with the S&P 500 index down by around 35%. To be sure, the market had been ripe for a correction. The S&P 500 had increased sevenfold between January 2009 and the 2024 election, fueled by stronger-than-expected growth in US output and employment in 2021-24. By the end of President Joe Biden's term, stocks had entered bubble territory. Whether evaluated relative to earnings, dividends, capital stock replacement value, or GDP, share prices had reached levels reminiscent of 1929 and other pre-crash episodes.