A gloomy outlook for the Eurozone economy

Today’s agenda: China-linked hack on US Treasury; defence sector dealmaking; active equity funds exodus; FT writers’ 2025 predictions; and who killed the rave?

Good morning and happy New Year’s eve. In the final FirstFT of the year, we look at predictions for the Eurozone economy in 2025, according to a Financial Times poll of 72 economists.

What’s the external outlook? A trade conflict triggered by US tariffs is almost taken as a given, with 68 per cent of respondents warning that such a scenario is the biggest threat for the region next year. Almost all of those polled — 81 per cent — said a second Donald Trump term would weigh on Eurozone growth, with the fallout from his trade policies expected to dent output in Europe even before they have been put in place.

While respondents expected a third year of subpar growth, there was broad consensus that the single currency area could avoid a recession.

What about domestic issues? Next to geopolitical risks, Europe’s inability to fix its homemade problems is seen as a key risk by close to a third of all polled. Asked about potential reasons for optimism, one in five referred to declining interest rates and some hope of an uptick in consumer demand. A similar share of analysts believe Germany’s snap elections in February might lead to tweaks in the country’s tight constitutional debt brake and increase investment.

Paradoxically, a fifth of all economists hope the gloom could become a blessing in disguise as the situation might become so bad that Europe is forced to embark on necessary reforms. Here’s more from the FT poll.

• Year in a word: Tariff. The incoming Trump administration is set to dust down a weapon from a bygone era, says our senior trade writer Alan Beattie.

And here’s what else we’re keeping tabs on today and tomorrow:

• UN: The Security Council’s non-permanent members Ecuador, Japan, Malta, Mozambique and Switzerland end their two-year terms today.

• EU: Poland assumes the bloc’s revolving presidency tomorrow.

• UK: Actor Stephen Fry and London mayor Sadiq Khan were among those knighted in the New Year honours list, while VAT for private school fees kicks in tomorrow.

• Markets: Many financial markets around the world will have limited hours today and be closed tomorrow. US stocks dropped yesterday in a broad pullback as traders cashed in on the year’s gains.

FirstFT is taking a break tomorrow and will return on Thursday. Thank you for reading this past year and let me know what you hope to see from this newsletter in 2025. Happy New Year! — Tee

Five more top stories

1. A Chinese state-sponsored actor hacked the US Treasury department through a third-party service provider in a “major cyber security incident”, the agency said yesterday. The department has been working with the FBI to determine the impact of the hack, it said in a letter to a Senate committee seen by the FT.

2. Defence companies are primed for a surge in deal activity as many look to deploy growing cash piles to invest in technologies such as artificial intelligence, sophisticated drones and space systems. The leading 15 defence contractors are forecast to log free cash flow of about $50bn in 2026, almost double their combined cash flow at the end of 2021.

3. Senior ministers warned UK prime minister Tony Blair in 2004 against free movement from new EU member states, including Poland, newly released documents show. The move to allow migrants from 10 mostly eastern and central European countries to work with few limits led to a sharp rise in immigration, eventually becoming a contentious political issue by the time of the Brexit vote in 2016.

4. Exclusive: Russia’s military prepared detailed target lists for a potential war with Japan and South Korea, according to secret files from 2013-14 seen by the FT. The strike plans, summarised in a leaked set of Russian military documents, cover 160 sites such as roads, bridges and factories, and included nuclear power stations.

5. Exclusive: BlackRock is heading for a showdown with US banking regulators within weeks. The Federal Deposit Insurance Corporation has given the $11.5tn investment giant until January 10 to accept proposed new compliance measures whenever it owns more than 10 per cent of the outstanding shares in FDIC-supervised banks, people familiar with the situation said. Brooke Masters has more details from New York.

Forecasting 2025

FT writers have penned their best guesses for the new year, from the likelihood of peace in Ukraine, to whether the friendship between Donald Trump and Elon Musk will endure, and the chances of a CD revival. Read our annual forecast and submit your own.

We’re also reading . . . 

• Climate change: Our Big Read today explores how extreme weather is redrawing Europe’s wine map, pushing viticulture into colder, northern regions.

• Who killed the rave? From Berlin to New York, clubbers in the world’s party capitals are heading home earlier.

• Michael Cassidy: A visionary who played a key role in transforming the City of London into a global behemoth steps down after 44 years.

Chart of the day

Investors pulled a record $450bn out of actively managed stock funds this year. The exodus from active strategies has gathered pace as older investors, who typically favour them, cash out and younger savers turn instead to cheaper passive strategies.

The story you commented on most in 2024

Readers had a lot of thoughts about the June news that wealthy foreigners were stepping up plans to leave the UK as taxes increased, with more than 2,500 leaving comments. Here’s a selection:

If your only motivation for being in Britain is you want to pay less tax and a when a democratically elected government asks you to do pay slightly more you have a tantrum and leave then good riddance. Enjoy being a citizen of nowhere. — Reader Tony, Islington

It is rich people that pay the vast majority of taxes. If they leave the country and pay nothing, everyone else either has to pay more or face big cuts in government spending. Policies driven by petty jealousies and envy end up costing those who are envious the most. — Reader Androcydes

“I’ve worked my backside off for 25 years, having worked my butt off all through school. I’ve saved enough to retire age 49. You can be jealous, but I went to state school, started with nowt and my grandad was a builder. I am now going to move to Portugal (Golden visa for €500k), and whilst there I will be avoiding all this nonsense and paying 10 per cent tax. Plus getting a tan. — Reader 8