AMP expects the ASX 200 to reach 8,800 by the end of next year, but warned a series of challenges will lead to a volatile 2025. with a 15 percent correction “very likely” over the year.

“Global and Australian shares are expected to return a far more limited 7 per cent next year,” AMP chief economist Shane Oliver said in his latest market briefing.

“Stretched valuations after two strong years, the continued risk of a recession, the likelihood of a global trade war and ongoing geopolitical issues are likely to make for a bumpy ride in 2025.” with a 15 percent correction somewhere along the way very likely.”

Elaborating on the main threats for next year, Oliver said the "list of worries" is long and perhaps even more threatening than in 2024, given the uncertainty created by President-elect Trump's policies.

Threats, he said, included less attractive equity valuations, uncertainty about how much central banks would cut rates and the risk of recession particularly in the US but also in Australia if the RBA left rates too high for too long.

What's more, the chief economist noted the risk of a global trade war, as well as ongoing risks to the Chinese economy, which could be heightened when Trump raises tariffs.

Geopolitical risks also remain high, Oliver said, with escalating tensions in Ukraine, Iran and China, political uncertainty in Europe and upcoming elections in Australia and Germany potentially impacting oil prices and public spending.

"These considerations point to at least a high risk of increased volatility after the relative calm in 2024," the economist noted.

But there are grounds for optimism, he said, especially given that inflation is likely to continue to ease as labor markets and commodity prices continue to ease, prompting central banks to push for rate cuts.

Turning to the Reserve Bank of Australia in particular, Oliver said that by May the central bank would start to reverse its cycle by cutting interest rates to 3.6% by the end of the year.

Regarding the forecast slowdown in global growth, Oliver assured that it is likely to pick up in the second half, helped by interest rate cuts.

"Australian growth is likely to reach 1.8 per cent, helped by rising real wages, tax and interest cuts, and this should lead to a return to earnings growth," he said.

Beyond his expectations for the ASX 200, Oliver said bonds are expected to deliver modest returns as inflation slows and central banks begin to cut rates, while unlisted commercial property is expected to see returns improve.

Australian house prices, on the other hand, may weaken further over the next six months before recovering with lower interest rates, potentially rising 3% by 2025.

Cash and bank deposits can offer returns above 4 percent, although those are likely to slow as the cash rate falls, Oliver said. Meanwhile, he predicted the Australian dollar would fluctuate between $US0.60 and $US0.70, affected by interest rate differentials and trade tensions.