As the world moves into 2025, the economic outlook has seen some shifts that are likely to continue—the unstable geopolitical situation notwithstanding. From the perspective of the United States pump industry, perhaps the most important factor is the Federal Reserve (Fed) has begun lowering interest rates. Although how quickly the interest rates continue to be lowered in the coming quarters will depend on the Fed’s assessment of the economy at that time, an expectation of a steady, rather than precipitous, lowering of interest rates throughout the first half of 2025 is reasonable. However, an expectation that rates are likely to be lowered near their all-time lows is unrealistic, as the Fed only took rates there in response to major crises such as the financial crisis or the COVID pandemic.
Businesses are likely to find borrowing funds cheaper than they have for some time. Depending on how the economy develops over the coming months as the effects of the lowering of interest rates begin to be felt, it is not impossible that businesses may be looking at the lowest interest rate coupled with an economically stable environment since 2018/2019. That condition is dependent upon whether the U.S. economy enjoys a so-called “soft landing,” however.
For American pump companies that do business outside of the U.S., one would expect a lowering of interest rates to lead to a weaker U.S. dollar that would, all else equal, make exports more competitive. In the case of Japan, which raised its interest rates in July, the subsequent lowering of U.S. rates is likely to result in more competitive U.S. exports to Japan. In the case of Europe, the European Central Bank (ECB) is also pursuing a policy of lowering interest rates, which could have the effect of “canceling out” U.S. rate reductions. However, the ECB began its cycle of lowering rates in September of 2023 while the U.S. kept its interest rates high and only began cutting in September of 2024. With both the Fed and the ECB now cutting rates, one would expect U.S. exports to the Eurozone to be more competitive than what they were over the 18-24 months leading up to September 2024.
In Asia, what is going on in China will be key for the region and the world. While it has not received the same coverage in the popular press in the U.S., China is currently undergoing a property/financial crisis not completely dissimilar to what the U.S. went through in 2008/2009.
However, while the U.S. governing institutions acted aggressively to stem the crisis, and the U.S. economy was able to bounce back rather quickly, China’s governing institutions do not appear to have been able to get a handle on the situation as quickly or as effectively as the U.S. did. This, as well as the fact that the world appears to be diversifying away from China, is causing China to struggle economically. This is likely to continue to impact the economic prospects of the region as a whole, making the region an uneven prospect for U.S. pump companies in 2025.
It should be noted the stability of the Chinese Communist Party (CCP) and, by extension, the entire political system, is completely dependent on the economy for its legitimacy. China is facing many challenges (including a demographic crisis), that are reducing its overall long-term economic prospects and its ability to create the broad-based societal wealth associated with a first-world economy. While not expected in 2025, a fundamental loss of legitimacy for the CCP and the fallout from the resulting political/economic upheaval that loss would cause is something that should be kept back of mind for companies doing business in Asia in general, or China in particular.
Additionally, the trends toward a general global economic decoupling, and away from the globalization process that was underway up until the pandemic, are likely to continue. Political pressures toward more protectionism, reshoring, shortening supply chains, etc., are not going away any time soon. In addition, the war in Ukraine, and to some extent Israel, has reshaped alliances and perspectives.
Although always the case to some extent, trade policy is now being more clearly seen as part of an overall national geopolitical strategy, as opposed to being an effort to grow one’s economy. Policy decisions are not judged only as to whether they make economic sense, but whether they make sense in the context of the broader international geopolitical strategy as well. Going forward, U.S. businesses operating internationally will need to remain more attuned to these trends than in the past, in order to anticipate potential changes in U.S. policy for political reasons that could result in overseas business investments/operations unexpectedly losing their economic rationale.
The View From Europe
Geopolitical concerns
Last year’s version of this article delineated the serious concerns Europeans expressed regarding the political instability in the world. These were:
- Continuing war in Ukraine
- Israel and Hamas conflict expanding to affect much of the Middle East
- Israel and U.S. conflict with Iran
- China either invading Taiwan or starting something else to divert attention from their internal problems
- Russia reacting to Finland (and eventually Sweden) joining NATO
This year, the issues are the same except Finland and Sweden are in NATO, and Russia has so far done nothing. It appears now that although serious concerns remain, the situation has somewhat become “the new norm.” Even though the actual situation remains much the same, concerns, although still present, appear on the surface to be less urgent than one year ago. This should to some degree improve the overall outlook when considering investment decisions.
Economic outlook
The view from the Europump economic consultant and from industry leaders interviewed for this article is that 2025 will be marginally better economically than 2024. Overall gross domestic products are expected to be very slightly improved and inflation is expected to fall slightly—or at least not increase.
Energy prices are expected to stabilize, and a slight increase in world pump demand is expected. The greatest year-to-year demand increases in 2025 will be in power generation, general industry and wastewater. Demand from general industry will benefit from an overall increase in manufacturing activity. Water and wastewater demand will recover from a low 2024 base. Power generation will lead all areas on year-to-year growth due to increased industrial activity and stabilized energy prices.
Geographically, the greatest year-to-year demand increases will be in North America and the Asia-Pacific region. The greatest overall demand increases will be in the Middle East-Africa and the Asia-Pacific regions. Europe will experience an overall demand increase of around 4% in 2025, a slight improvement but behind the other regions mentioned. The only area that will see a reduction in demand is South America, with a year-to-year decrease of slightly less than 1%.
Regulatory environment
As has been typical for the last few years, much of Europump’s efforts in the standards area continue to relate to energy savings and environmental issues. This of course affects all industries and is not just related to the pump industry. Two key issues relate to PFAS and the Green Deal.
PFAS
Last year, there was serious concern that due to the large amount of publicity and public outcry over the issues relating to per- and polyfluoroalkyl substances (PFAS), the European Commission (EC) would look favorably toward the total ban many groups were demanding, despite the devastating effect this would have on the entire European economy.
During the past year, however, there have been thousands of comments from industries worldwide received by Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), who are tasked with coming up with a workable regulation. These overwhelmingly showed that a complete restriction would result in severe negative consequences to European industry and the overall economy, as well as crippling a number of environmental initiatives. As a result, there will be continuing study over this issue before overall regulations are put in place. The position of the EC at this time is:
The Commission will ensure consistency across EU policy objectives, and investments in key technologies for the twin transition and EU strategic autonomy should not be disrupted.
The Commission supports banning the use of PFAS in consumer uses, like cosmetics, food contact materials and outdoor clothing.
Where adequate alternatives in terms of performance and safety are not available, the continued use of PFAS in industrial applications, in particular critical ones, should be ensured.
Such continued use should take place under strictly controlled conditions until acceptable substitutes are found.
Green Deal
As stated in last year’s article for 2024:
The European Green Deal was approved in 2020. It is a set of policy initiatives by the European Commission with the primary goal of making the European Union climate neutral by 2050.
The plan is to review each existing law on its climate merits and also introduce new legislation on the circular economy, product environmental footprint, building renovation, biodiversity, farming and innovation. These goals are extremely ambitious. This is expected to lead to what has been called a tsunami of regulations. Presently there are around 45 single recommendations to achieve these goals that must be turned into regulations. The scopes of many of these regulations overlap one another. Worse, many conflict with one another. For example, designing a product to be robust, modifiable and recyclable to achieve circular economy goals can be at odds with minimizing the carbon footprint of the product. In the whole process, there has generally been a poor dialogue with stakeholders and little consideration of free market effects.
One year later, the situation is much the same, with Europump continuing to have groups working on many issues relating to this, including:
- Circular economy
- Product category rules
(environmental footprint) - Drinking water
- Digitization (including digital passport)
- Greenhouse gases
- Various efficiency initiatives
- PFAS