Global manufacturing in 2025 defied the conventional script that trade conflicts lead to industrial decline. J.P. Morgan attributes the sector's resilience to several key factors: global industrial production (IP) began to recover after the downturn of 2022-2024, and, notably, the goods sector outperformed services even during the peak of trade friction.
According to sources, Joseph Lupton of J.P. Morgan's global economic research team stated in a report dated the 24th that 2025's industrial performance "broke from its historically tight relationship with GDP." This is the core "anomaly" the report seeks to explain: why growth didn't collapse, why inventories weren't a drag, and why the recovery wasn't solely reliant on the technology sector.
The answer is pinned on three variables: first, demand was led by capital expenditures, particularly equipment investment; second, while the AI boom indeed boosted tech output, a more critical factor was the return to positive growth for the non-tech sector after two consecutive years of contraction; third, inventories shifted from being a "drag" to being "lean," creating flexibility for future growth.
Looking ahead, the report's outlook is not overly aggressive: with end-demand still stable, inventories low, and demand potentially broadening, global industrial production could still achieve an annualized growth rate of 2%-3% in the coming months. However, risks are "two-sided"—a return to a more sustainable pace for tech, coupled with stagnation in the labor market constraining retail demand, could push growth back down. Meanwhile, legal changes related to tariffs are seen as unlikely to alter the fundamental "trade conflict" narrative in the US.
The 2.4% growth for 2025 wasn't achieved in one surge: the first quarter was very strong, but there was no subsequent "hangover" in the second half. The report characterizes 2025 with one number: global industrial production grew 2.4% on a fourth-quarter-over-fourth-quarter basis. A significant portion of this growth, 1.6 percentage points, was concentrated in February-March, translating to an annualized rate of 9.4%. The report links this surge to anticipatory production and purchasing driven by "concerns over global trade conflicts."
More notably, J.P. Morgan had initially expected this "short-term stimulus" to lead to stagnation in the second half of 2025, but the opposite occurred: growth did slow, but still maintained a 1.7% annualized pace. The report partly attributes this resilience to a change in inventory dynamics—the pace of inventory drawdowns slowed gradually through 2025, providing a floor for output.
AI is the obvious driver, but 2025 was more about a "non-tech recovery": from -0.8% to +1.2%. The strength of the tech sector was unsurprising. The report states that, excluding China, global tech output grew 9.1% year-over-year in 2025, up from 4.7% in 2024, fueled by AI enthusiasm and capital spending by hyperscale cloud providers.
However, the report emphasizes that while tech has been strong for years, it alone cannot explain the 2025 turnaround from the "2022-2024 slump" to "re-acceleration." The more critical variable was the return to positive growth for non-tech output—global non-tech output rose 1.2% year-over-year in 2025, compared to a -0.8% average over the previous two years. This is not a high-growth reading, but the shift in direction is enough to reshape assessments of whether the industrial cycle is broadening.
Developed markets didn't rely on autos for recovery: US and Europe plateaued after a Q1 jump, with a structure resembling a "broad-based repair." Regionally, the report identifies the awakening of developed market manufacturing as a key theme for 2025: DM manufacturing returned to +1.4% year-over-year growth after contracting 1.4% in 2024. The improvement was most pronounced in the US and the Eurozone: over the two years ending Q4 2024, US and Eurozone manufacturing output contracted at annualized rates of -0.9% and -2.9%, respectively; whereas in 2025, the US and Eurozone grew 1.7% and 1.8%, respectively.
The report does not shy away from the reality that "growth was concentrated in Q1, then flattened," but it also stresses that the feared "payback" after the front-loading did not materialize.
At the industry level, automobiles were not the engine of this recovery. The report notes that auto performance in developed markets was relatively stagnant, with US autos remaining a notable weak spot. However, the recovery was broader than just "tech + pharma." In the US, besides tech and pharma, aerospace and machinery also improved; in the Eurozone, key sectors like machinery and autos rebounded from 2024 weakness. Using the report's metrics, 14 out of 20 US manufacturing IP categories improved in 2025 compared to 2024, while in the Eurozone, 9 out of 11 categories improved.
Emerging markets: Aggregate performance was decent, but "Asian strength = tech strength," and it was uneven. The report's assessment of emerging markets leans towards "stable but divergent": EM goods production still grew 3.8% year-over-year, though slower than 2024's 4.6%. Recent strength has been primarily driven by Asia, which in turn is highly concentrated in tech.
Among the economies cited, Singapore's tech output surged notably, with tech occupying a larger share of its manufacturing; Singapore also experienced year-end disruptions from front-loaded pharmaceutical production. Conversely, regions with weaker tech拉动 and heavier non-tech weightings did not "shine" in 2025. Manufacturing output in South Korea and Thailand actually contracted on a 4Q/4Q basis, which the report links to the drag from trade conflicts.
Focusing on demand: Equipment investment drove the non-tech rebound, but structural blind spots remain. The report identifies "rising end-demand" as the foundation of the industrial rebound, with capital expenditures being the most prominent factor. Global business equipment investment grew 6.5% year-over-year in Q3 2025, the fastest pace in three years; their capex nowcaster indicated an annualized growth of about 4.4% in Q4, with monthly data tracking around 6% annualized entering the current quarter.
A point often overlooked is that the uptick in equipment investment was not solely a US phenomenon. The report's tracking suggests that, excluding the US and China, global equipment investment growth accelerated to a 5.9% annualized rate in the first three quarters of 2025, up from 3.6% in 2024.
However, the report also acknowledges limited visibility: it's difficult to disentangle whether the recovery in non-tech output stems more from non-tech capex outside the US or from inventory changes for non-tech goods. At least in the US, the 2025 capex acceleration was primarily driven by tech components, with other categories more mixed; though by year-end, durable goods orders and shipments were showing signs of more "non-tech" improvement, seen as an early signal of demand broadening.
Inventories shift from "drag" to "lean": Upside risk originates here. Inventories are repeatedly mentioned in the report as an "explainer." The jump in end-demand at the start of 2025 temporarily outpaced output, implying a slowdown in inventory accumulation. Subsequently, output caught up quickly, and by mid-year, the contribution of inventories to manufacturing growth turned slightly positive. The report believes that by the end of 2025, the inventory drag had largely dissipated, with reasons to consider inventory levels "lean."
This is one reason for their "two-sided" risk assessment for the future: if demand sustains current levels, lean inventories might force additional restocking, potentially giving industrial output an upside elasticity beyond the demand itself.
Legal changes on tariffs have "limited impact": The trade conflict narrative persists. The report mentions the recent development of the US Supreme Court overturning IEEPA tariffs, which superficially appears positive. However, J.P. Morgan's conclusion is that this acts more as a constraint on the policy toolkit rather than a shift in trade stance. The reason is the subsequent government announcement of 15% Section 122 tariffs with multiple exemptions; overall, the impact on effective tariff rates and the US "trade conflict" process is limited, unlikely to disrupt the ongoing recovery in business confidence.
The coming months: A window for 2%-3% annualized growth, with risks from "tech and employment." Under the combination of "lean inventories + decent end-demand + potential broadening of demand from tech to non-tech," the report anticipates global industrial production could still achieve 2%-3% annualized growth in the coming months.
However, they clearly outline two downside risks: first, tech growth moderating to a more sustainable level; second, labor market stagnation suppressing retail and consumer goods demand. The report's baseline scenario envisions fading corporate caution leading to increased hiring, allowing consumption to take over as a more "income-driven" expansion. If this transition fails to materialize, the 2025 structural anomaly of "industry outperforming services" could also converge back towards historical norms.
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