The global economy in 2025 faces many uncertainties. Political turmoil in key regions is set to shape the economic landscape in a big way. This year has seen dramatic developments across the globe.
Israel’s war against Hamas in Gaza got worse and involved Hezbollah in Lebanon before a shaky ceasefire was reached. In Syria, rebels toppled Bashar al-Assad. Russia’s war in Ukraine entered its third year.
The reelection of former US President Donald Trump is likely to have the biggest impact on global prosperity in 2025. Trump’s proposed economic measures, especially his stance on tariffs, are causing widespread concern. During his campaign, Trump talked about putting levies of 10-20% on all goods imported into the United States and much higher tariffs on Chinese imports.
After his victory against Kamala Harris, Trump specifically mentioned a 25% import tax on Mexico and Canada, and an extra 10% tariff on China. Economic experts are wary of what these policies could mean. “There’s a lot of frustration out there at how the global economy is going,” said Nathan Sheets, global chief economist at Citi.
Sheets stressed the uncertainty around Trump’s return to the White House and the possible introduction of new tariffs. Higher tariffs could have major consequences. Christine Lagarde, president of the European Central Bank, noted, “I continue to think that restrictions on trade, protectionist measures, are not conducive to growth.” Goldman Sachs predicts a big negative impact on US GDP, citing higher consumer prices and reduced spending as potential outcomes of a 10% tariff on all imported goods.
The global economy could suffer from a trade war triggered by tit-for-tat tariffs from affected countries. Capital Economics warned that such a scenario could reduce global GDP by 2-3%, wiping out most economic growth.
Trump’s tariffs and global risk
Moreover, uncertainty about trade policies could deter business investment, particularly in Europe and China. Goldman Sachs and J.P. Morgan have already adjusted their predictions for European growth downward for the next year. In China, facing the near certainty of steep tariff hikes, economic forecasts are also being revised.
Inflation could be another consequence of Trump’s policies, as higher US tariffs and potential tax cuts could lead to increased prices and labor shortages. The US is not alone in experiencing political upheaval. French President Emmanuel Macron called a snap parliamentary election that resulted in a minority government.
This instability is likely to hinder effective governance and curb business investment and consumer spending. “Political chaos will weigh on growth” in France next year, according to a report by European bank ING. Germany is also anticipating a snap election in February 2025 following the collapse of its governing coalition, adding to the political uncertainty in Europe.
Tensions in the Middle East, while significant, are not currently viewed as an immediate threat to global oil supplies. Sheets at Citi noted that the parameters of the ongoing conflict are not directly threatening oil flows. Oil prices have stabilized since their peak following the October 2023 Hamas attack on Israel.
In contrast, Russia’s ongoing war in Ukraine continues to impact global energy markets, keeping natural gas prices in Europe high. Trump’s ambition to quickly end the conflict could have varied economic outcomes, ranging from boosting business confidence to potentially triggering further instability depending on the resolution. The global economy in 2025 must navigate through a minefield of political and economic challenges.
The reelection of Donald Trump and his proposed tariff policies, combined with political instability in Europe and ongoing geopolitical conflicts, will play key roles in shaping economic performance worldwide. Analysts and policymakers alike will need to stay alert and adaptive in the face of these evolving threats.
Noah Nguyen is a multi-talented developer who brings a unique perspective to his craft. Initially a creative writing professor, he turned to Dev work for the ability to work remotely. He now lives in Seattle, spending time hiking and drinking craft beer with his fiancee.
