Global economic growth to remain at 2.8 percent in 2025, says UN

The latest report from the United Nations Department of Economic and Social Affairs indicates that global economic growth is projected to remain at 2.8% in 2025 and slightly increase to 2.9% in 2026, largely unchanged compared to the past two years. This report, titled "World Economic Situation and Prospects 2025," reveals that despite the global economy withstanding a series of mutually reinforcing shocks, growth remains stagnant and below the pre-pandemic annual average of 3.2%.

The report suggests that while easing inflation and potential monetary easing in many countries may stimulate aggregate demand, ongoing conflicts and geopolitical tensions could exacerbate supply-side challenges. Furthermore, the persistent fiscal constraints and lingering debt issues in many developing countries will continue to limit their capacity to invest in productive capacity and stimulate economic growth.

The UN predicts that economic growth in China and the United States will be positive but slightly slower. Meanwhile, the economies of the European Union, Japan, and the United Kingdom are expected to experience moderate recoveries, while some large developing countries such as India and Indonesia will maintain strong growth momentum. However, the short-term outlook for many low-income and vulnerable countries remains unfavorable, and while economic growth in the least developed countries may improve slightly in 2025, the UN has lowered its forecast from its mid-2024 projections.

The slowdown in global economic growth reflects persistent structural challenges such as weak investment, slow productivity growth, high debt levels, and demographic pressures. Many developing countries are still struggling to cope with the effects of the pandemic and other recent shocks. While the green transition and technological advancements have the potential to boost growth, any gains from these may be disproportionately concentrated in developed economies. At the same time, many developing countries face significant obstacles in mobilizing funds to invest in critical infrastructure, technology, and human capital, as well as in moving up manufacturing and service value chains.

The U.S. economy once again outperformed expectations in 2024, with an estimated GDP growth of 2.8%, driven by strong consumer spending, public sector expenditures, and non-residential investment. However, the UN report projects that U.S. economic growth will slow to 1.9% in 2025 and slightly rebound to 2.1% in 2026 due to a weaker labor market performance, moderate income growth, and spending cuts. While further interest rate cuts will provide a tailwind for the economy, persistent core inflation may keep the Federal Reserve cautious and restrain rapid monetary easing.

In contrast, Europe's economic growth, after underperforming in 2024, will gradually recover in 2025 and 2026. In the European Union, economic growth is projected to strengthen from about 0.9% in 2024 to 1.3% in 2025 and 1.5% in 2026. Lower inflation, easing financing conditions, and resilient labor markets will continue to support private consumption and investment. However, potential fiscal tightening, ongoing geopolitical uncertainties, and long-standing structural challenges such as population aging and weak productivity growth will limit the pace of economic expansion.

Furthermore, Japan's economic recovery momentum is expected to continue. The UN report projects that Japan's economic growth will rebound from about -0.2% in 2024 to 1.0% in 2025 and 1.2% in 2026. Private consumption, which has stagnated since mid-2023 due to weak wage growth, is likely to gradually recover, while investment will remain resilient. The Bank of Japan faces a policy dilemma, as overly tight monetary policy could push the economy back into deflation by slowing the wage growth that has just begun to accelerate.

On the other hand, China is facing the prospect of a gradual economic slowdown, with projected economic growth of 4.9% in 2024 and an estimated 4.8% in 2025. Public sector investment and strong export performance are partially offset by sluggish consumption growth and continued weakness in the real estate sector. The Chinese government has increased policy support to boost the real estate market, address local government debt challenges, and stimulate domestic demand. Declining population and increasing trade and technology tensions could weaken the medium-term growth outlook.

The report projects that economic growth in Western Asia will strengthen from about 2.0% in 2024 to 3.5% in 2025, driven by Saudi Arabia and Turkey, the two largest economies in the region. The economic performance of major oil exporters in the region is likely to improve in 2025 due to the easing of oil production cuts by OPEC+. The six member countries of the Gulf Cooperation Council will enjoy relatively low inflation supported by energy and food subsidies. In contrast, conflicts, persistent high inflation, and tight fiscal space will adversely affect the outlook for oil-importing countries in the region.

In 2024, against a backdrop of easing inflation, most central banks have shifted towards monetary easing. The European Central Bank initiated this shift in June 2024, followed by the Bank of England in July. The Federal Reserve began easing in September, while the Bank of Japan moved in the opposite direction, starting to tighten policy in March. As of November 2024, 67 out of 108 central banks were in an easing phase, with another 20 likely to begin easing soon. This shift is most pronounced in developed economies and Asian economies, while African central banks have been slower to ease rates amid persistent inflationary pressures. Although the duration and depth of the monetary easing cycle remain highly uncertain, global inflation is expected to decline from 4% in 2024 to 3.4% in 2025, which will bring some relief to households and businesses.