As 2025 approaches, a series of challenges in the global economy have raised "red flags."
The global economy, having just emerged from the impact of the COVID-19 pandemic, faces new challenges in 2025. Although central banks will begin to cut interest rates in 2024 and the stock market will reach historic highs, the cost of living crisis is worsening, and voter dissatisfaction with incumbents is rising. If Trump is elected, it could trigger a trade war, leading to a new round of inflation and economic slowdown. Issues such as the conflicts in Ukraine and the Middle East, as well as climate change, further exacerbate the uncertainty of the economic outlook. The poorest countries are facing the worst economic conditions in 20 years, and governments need to address voter negativity to avoid the rise of extremist parties
According to Zhitong Finance APP, just as the global economy begins to shake off the impact of the COVID-19 pandemic, it will face a series of new challenges in 2025.
In 2024, central banks around the world will finally be able to start lowering interest rates, having largely won the battle against inflation without triggering a global recession. The stock markets in the United States and Europe have reached historic highs, and Forbes has declared this year as the "harvest year for super-rich," with 141 new billionaires joining its list of super-rich.
However, at the same time, in a bountiful election year, voters have punished incumbents from India to South Africa, Europe, and the United States, as they feel the economic reality: the cumulative price increases post-pandemic have led to a relentless cost-of-living crisis.
For many, 2025 may become even more difficult. If Donald Trump implements U.S. import tariffs after being elected president, triggering a trade war, it could mean a new round of inflation, a slowdown in the global economy, or both. The unemployment rate, currently near historic lows, may rise.
Conflicts in Ukraine and the Middle East, as well as the political deadlock in Germany and France, further cast a shadow over the global economic outlook. Meanwhile, many countries are increasingly concerned about the costs of climate destruction.
Why It Matters
According to the World Bank, the poorest countries have missed out on the post-pandemic recovery and are in the worst economic condition in 20 years. What is least needed now is new headwinds—such as weakening trade or financing conditions.
For wealthier economies, governments need to find ways to combat the negative beliefs of many voters that their purchasing power, living standards, and future prospects are declining. Failing to do so could fuel the rise of extremist parties that have already caused division and suspended parliaments.
After the pandemic in 2019, new spending priorities beckon to already strained national budgets, including addressing climate change, strengthening military capabilities, and caring for an aging population. Only healthy economies can generate the necessary revenue. If governments decide to stick to what they have been doing for years, it will only increase more debt or face the risk of falling into a financial crisis sooner or later.
What It Means for 2025
As European Central Bank President Christine Lagarde stated at the press conference following the ECB's last meeting of the year, there will be "a lot" of uncertainty in 2025.
It remains to be seen whether Trump will impose a 10-20% tariff on all imports, a 60% tariff on Chinese goods, or whether these threats are merely opening strategies in negotiations. If he continues to implement these measures, the impact will depend on which industries are hit first and who will retaliate.
Since the pandemic, Europe's economy has further lagged behind the United States. Can Europe address any underlying causes, from lack of investment to skills shortages? First, it needs to resolve the political deadlock in Germany and France, the two largest economies in the Eurozone.
For many other economies, if Trump's policies cause inflation that slows the Federal Reserve's rate cuts, the prospect of a stronger dollar will be bad news. This will siphon off investments from these countries, and dollar-denominated debt will become more expensive Finally, coupled with the largely unpredictable impacts of the conflicts in Ukraine and the Middle East, both of these events could affect the energy costs driving the global economy.
Amid multiple challenges, policymakers and financial markets are currently hoping that the global economy can weather all of this, and that central bank governors can complete the task of returning interest rates to normal levels. However, as the International Monetary Fund hinted in its latest World Economic Outlook: "Prepare for uncertain times."