The global economy in 2025: Stability amid uncertainty

The global economy is projected to achieve a stable growth of 3.3% this year, slightly higher than the 3.2% in 2024. Over the past few years, numerous challenges, including climate issues, geopolitical tensions, and technological advancements, have defined the world landscape. Entering 2025, the world will continue to face these challenges against a backdrop of a stable but somewhat subdued economy.

A report from the Organization for Economic Cooperation and Development (OECD) indicates that the global economy is expected to achieve a stable growth of 3.3% this year, slightly higher than the 3.2% in 2024. This forecast aligns with the International Monetary Fund (IMF)'s estimate in its "World Economic Outlook," which projected a global economic growth of 3.2% for 2025 in its report released last October. However, the IMF pointed out that while developed economies are experiencing moderate growth, emerging markets, particularly India and China, will continue to lead growth, albeit at a slower pace. For example, India achieved a growth of 8.2% in 2023, but its GDP growth is projected to be 6.5% in 2025. Meanwhile, the US economy is likely to slow down to 2.2% due to the gradual tightening of fiscal policies and cooling labor markets.

The World Bank, in its December report, highlighted that the world is at a pivotal moment, with 2025 marking the end of the first quarter of the 21st century. Data shows that without adjustments, 20 out of 26 countries are likely to remain impoverished over the next 25 years. This critical juncture underscores the urgency of promoting sustainable growth strategies in low-income and developing economies. The World Bank emphasizes that without targeted interventions, economic disparities between countries could further widen. However, it is not just developing countries facing significant challenges. For developed economies, the challenge lies in addressing stagnant growth, which is projected to grow by only 1.5% in 2024 and slightly increase to 1.7% in 2025, according to another World Bank report from June 2024. The World Bank stated that while the global economy is stabilizing for the first time in three years, its growth level remains relatively low compared to historical standards.

This year, the economic landscape will be influenced by four key factors: the delicate dynamics of energy markets, the ongoing impact of the US Federal Reserve (Fed), climate change, and technology. In the energy sector, global geopolitical tensions will continue to put pressure on energy markets. Oil prices will face various variables in 2025. Ongoing conflicts will impact energy production and supply. Meanwhile, the demand side will also depend on China's ability to manage its economic challenges. Energy and oil expert Amer Al Shobaki suggests that Brent crude oil prices may hover around $70 per barrel, while West Texas Intermediate crude prices may hover around $67 per barrel.

Regarding the Fed, changes in trade and monetary policies are expected under a US Trump administration. His administration is likely to pursue protectionist policies, including renegotiating trade agreements and raising tariffs. Trump has pledged to impose high tariffs on major trading partners like Mexico, Canada, and China, and has even threatened to impose 100% tariffs on BRICS countries. A renewed trade war with China could disrupt global commerce, cause supply chain issues, and increase costs for businesses and consumers. Furthermore, significant policy shifts are expected under the Trump administration, including deregulation and tax reforms. Expansionary policies could exacerbate inflationary pressures, forcing the Fed to adopt a more cautious stance. After its December 2024 meeting, the Fed indicated that it would slow down the pace of interest rate cuts in 2025 due to strong economic and labor market conditions. It also emphasized that inflation needs to approach its 2% target before further easing monetary policy.

Climate change is inextricably linked with economic growth. Various natural disasters have proven to be devastating, particularly in terms of infrastructure and population displacement. In 2022, a record 32.6 million people were displaced globally due to disasters. This concerning trend is likely to continue in 2025 and beyond, with such displacement negatively impacting local economies by hindering productivity and straining government budgets. Climate change also disrupts supply chains, leading to higher energy and food prices. These effects are particularly pronounced in developing economies, which are already facing challenges in funding their transition to low-carbon economies. The World Economic Forum (WEF) states that the world needs to bridge a $30 trillion investment gap to achieve net-zero emissions by 2050. Additionally, an analysis by Moody's Ratings forecasts an annual gap of approximately $2.4 trillion in climate mitigation investments by 2030. This situation calls for collective action from both the private and public sectors.

This gap is not limited to sustainability efforts, as economies around the world are also facing significant technological gaps. While the field of Artificial Intelligence (AI) is projected to inject up to $15.7 trillion into the global economy by 2030, many countries face the risk of being left behind due to unequal opportunities in infrastructure, talent, and investment required to harness the potential of AI. In the Middle East, initiatives such as Saudi Arabia's "Vision 2030" and the UAE's "AI Strategy 2031" aim to position the region as a global leader in technological innovation and AI applications. These plans focus on economic diversification, fostering innovation, and cultivating a tech-savvy workforce capable of harnessing the transformative potential of AI. Furthermore, regional technology hubs such as Dubai Internet City and collaborations with global tech giants are helping to drive investment in AI research and development.

Disclaimer: The views expressed in this article are solely those of the author. The information provided in this article is for general guidance only. It does not constitute advice on tax and legal matters, nor is it financial or investment advice. Please refer to our full disclaimer policy.