Renowned investor and author Ruchir Sharma recently engaged in a comprehensive discussion with Dr. Prannoy Roy, delving into the top 10 economic trends anticipated for 2025. Sharma’s insights shed light on the evolving dynamics of the global economy, highlighting significant shifts and emerging patterns.
1. Reversal In Recent Pattern of American Dominance
Sharma predicts a diminishing centrality of the United States in the global economy. He emphasizes that the world is becoming more multipolar, with emerging markets gaining prominence and reducing reliance on the U.S.
The U.S. stock market has been outperforming for 15 years—an unusually long trend. Historically, strong decades are followed by some correction, but that hasn’t happened yet. Despite the U.S. economy making up just under 30% of the global economy, its stock market now accounts for nearly 70% of global indices like the MSCI Global Index, highlighting the scale of this outperformance.
2. America’s Fatal Flaw: Fiscal Deficit
Every hero has a fatal flaw. America’s is its sharply increasing addiction to government debt. Ruchir’s calculations suggest it now takes nearly $2 of new government debt to generate an additional $1 of US GDP growth — a 50 per cent increase on just five years ago. If any other country were spending this way, investors would be fleeing, but for now, they think America can get away with anything, as the world’s leading economy and issuer of the reserve currency (Source: How ‘the mother of all bubbles’ will pop)
The U.S. market’s outperformance may not last if growth slows domestically or accelerates elsewhere. Market bubbles often burst unexpectedly, as seen with the 2011 commodities boom (driven by oversupply) and China’s 2021 growth bubble (triggered by a property sector crackdown).
3. America will look less exceptional
The U.S. economy appears strong, partly due to high government spending and rising debt. A key indicator is job creation—nearly 20% of new jobs now come from the government, raising questions about the role of public sector growth in a traditionally capitalist economy. (It used to be 1% according to the data. And now it’s 22% of jobs are created by the government in the most free market, private enterprise country. It used to be 1% just in 2010).
Also, the welfare payments by the government have increased significantly, more than 50% of the counties in America are now reliant much more on transfer payments from the government. That number used to be not even 25% a decade or two ago.
So American growth may take a hit because of this artificial boosted due to government spending. So, coming to 2025 America might slow down and the bubble might burst.
4. New Stars to Emerge
Emerging markets are on the rise, while China’s dominance fades. Compared to the U.S., these markets are growing at a faster pace, reclaiming lost ground from the past 15 years. With momentum on their side, their share in the global economy is set to expand even further. The future belongs to the rising stars.
As U.S. exceptionalism fades, attention may shift back to emerging markets. A key factor will be the dollar—its strength currently limits capital inflows into these markets. However, if and when the dollar weakens, emerging markets could see increased investment, boosting their growth. For India, this could be a significant opportunity.
Look at the India growth curve
Also, for a truly advancing economy, growth needs to be on par with China’s past 12% decade-long expansion. At 6-8%, India’s growth may outpace others, but it’s still not enough. To achieve real progress, higher and sustained growth is essential.
5. China Investible again
China’s economic landscape is encountering significant hurdles, including slowing growth and demographic challenges. It was interesting to understand the next prediction and the trend for 2025 as Ruchir Sharma suggest that China is still investable for investors across.
China has become an attractive destination for investment due to its relatively low stock market valuations compared to India and the US. The key metric used is the price-earning (P/E) ratio, which measures the cost of stocks relative to their earnings.
- China’s P/E ratio is 10, making its stocks significantly cheaper.
- In contrast, India and the US have P/E ratios of 23 and 22, respectively, meaning their stocks are more than twice as expensive as China’s.
This suggests that China’s market is undervalued compared to India and the US, making it a potentially lucrative opportunity for investors seeking value. However, the speaker implies that this attractiveness comes with risks, given China’s economic slowdown and geopolitical challenges.
6. In India Small will no longer be beautiful
Interestingly data shows that large cap companies in India, the annual returns were 8.75%. But mid cap and small cap, in particular, in mid cap 9.7% but small cap annual returns were 13.1% but if we look at America exactly the opposite: large cap 13% plus and small cap 8.7%, it’s like a mirror image and you’re saying small will no longer be beautiful in India, it won’t be 13.1% in India in the future.
The returns on small- to mid-cap stocks in India have been exceptionally high, driven in part by speculative mania and retail speculation. However, this trend is likely to cool down, as it’s rare for these stocks to consistently outperform large caps. In India, this gap may narrow, whereas in the U.S., the opposite trend is observed.
7. Overspending In AI Will Hurt Big Tech Firms
Back to AI. It was observed by Ruchir that there’s overspending on AI, and this is going to hurt the big tech firms in the U.S. Big tech firms are investing heavily, perhaps maniacally, to win the AI race. They used to spend an average of 10% a year for many years, now they’re spending an average of 27% per year in AI.
Contrary to the overspending, if you look at the reality, share of workers who use AI daily is just 4%. The share of firms that adopted AI is just 7%. I mean, these are really shockingly low. I didn’t expect them to be this low. And share of buyers who want a new phone for AI. 82% don’t want it for that. Only 18% want it for that. So it’ll take a while.
There is a hype triangle in the making, which is why expandnext.com reimagined the hype triangle to give readers some perspective:
So therefore, large spending in AI could hurt the profitability of these big tech firms while the adoption rate remains less and uncertain as tech firms are yet to find the right pricing for steady monetization.
8. Trade grows without America
Another amazing factor moving away from AI to America, which contradicts the underperforming and its exceptionalism theory that maybe ending. 8 out of the 10 hottest trade corridors currently do not include USA. You can see the top 10 trade corridors there, only two of them include America. The rest people are trading without involving America at all.
This is a very important development that’s taking place, which is that we are still so focused on seeing the world and the global economy revolve around America. But there are signs around world where trade deals are being negotiated without America. As per Ruchir, European Union signed a deal with a bunch of Latin American countries to bring tariffs down by 90%. So those regional trade agreements are accelerating. Also, bilateral trade agreements are accelerating. And here what we see is that if you look at the trade corridors around the world, the maximum growth is taking place between countries which don’t involve America. India should do more trade with its neighbors, which is now a bit challenge. While China, have very good trading relationships with their immediate neighbors. Cost of transport is so much less; regional hubs are much easier to create. The synergies are much easier to create, and in that regard, India’s relations with its neighbors haven’t been great, and so therefore trade hasn’t really taken off. But in general, otherwise, the larger point here being that India too is getting more active in signing more bilateral trade agreements, excluding America, which don’t involve America because it’s bilateral with other countries.
9. Private Funding to slow down Globally
Globally, the growth in private credit, in private lending and in private equity to slow down, particularly in the US. India is in the nascent stage: In India, private funding is growing fast, but still at an early stage, only 120 billion right now. While globally it is in trillion dollars.
10. Obesity: No Magic solution
Last and final, which is always a bit of a tweak among the 10 forecasts. And this is about obesity, and that there is no magic solution!
As per the graph below:
America is exceptional and in a very different way because of its level of obesity. It is sad that American level of obesity is 44%. About the highest in the world for any major country. Almost twice as high as Europe, ~ 3x of global avg.
Weight-loss injections like Ozempic are booming in America and can be beneficial for some. However, the idea of relying solely on these drugs while maintaining unhealthy habits—like eating ice cream and avoiding exercise—is unrealistic and unsustainable.
There is a massive increase in sales of obesity drugs, GLP-1, Ozempic and various others. Look at that, from 3 billion four years ago to 24 billion now, that’s an eightfold increase. (Bernstein Research. Breakout capital research as of Dec 2024)
There’s a huge craze around weight-loss drugs, but there’s no magic solution. It’s not as simple as just taking a shot—sustainability and side effects are real concerns. Since these drugs are still in the early stages, their long-term impact remains uncertain.
Finally, the top 10 trends / Prediction of 2025 are as follows:
