News & Insights

Despite geopolitical tensions and trade frictions, GDP growth in 2025 proved surprisingly resilient, slowing only slightly compared to 2024. However, vulnerabilities remain, as several factors that have supported the global economy thus far may prove to be temporary.

After years of pandemic-related disruptions, inflationary pressures, and geopolitical instability, the emergence of artificial intelligence (AI) as a general-purpose technology is reshaping economic dynamics. While it offers upside potential, AI also evokes memories of the dot-com boom of the late 1990s.

Global economic conditions remain complex as we enter the final quarter of 2025. While growth has shown an unexpected resilience since Liberation Day, the interplay of trade frictions, inflation dynamics, and policy uncertainty continues to shape a challenging environment. Central banks, particularly the Fed, face a delicate balancing act: sustaining economic momentum without reigniting inflationary pressures.

Investors are hoping for accommodative monetary policy in a stable economic environment, with “insurance” or “normalization” rate cuts. However, the Goldilocks scenario is increasingly being tested as adverse inflation dynamics clash with a weakening labour market.

The global economy started 2025 on a solid footing as businesses and consumers rushed to front-run US tariffs by producing and buying more goods. Although several factors have unfolded more constructively than feared, was the drop in economic activity averted, or only delayed?

Economic activity remained relatively resilient in early 2025, although this stability was supported by temporary factors. In fact, global growth projections have been revised markedly down in recent weeks, reflecting tariff rates at levels not seen in a century and a highly unpredictable environment, while inflation risks have increased.

Global growth remained relatively resilient in early 2025. However, front-loading of global trade flows, particularly between Asia and North America, greatly distorted the reality. In fact, stagflation and recession risks have both increased significantly.

President Donald Trump’s trade-war salvo, the largest act of American protectionism since the 1930s, combined with his foreign policy’s complete shift, are sending significant shockwaves through the global economy. Although the full impact of phenomenal uncertainty is a key unknown, inflation and growth dynamics might well evolve opposite to investor’s Goldilocks scenario.

A trade conflict with the US’s closest economic partners might begin soon, and all indications are that these actions are a start to a widening trade war. The complete ramifications are unknown, yet the cost of uncertainty could be large and increases the risk of stagflation.

In 2024, global growth has remained stable and world trade has been recovering, while price pressures continued to ebb. Investors project that this resilience will continue in 2025, with inflation further converging towards central banks’ targets. However, this outlook masks significant differences across sectors and countries, and is surrounded by important uncertainties.

While global growth has proved resilient to policy tightening, significant divergences have emerged across countries, and the outcome of the US election has increased the risks for that trend to amplify. Furthermore, by choosing not to act on any assumptions about what the incoming US administration might enact, combined with the long and variable lags of monetary policy, the Fed will struggle to contain the economic consequences of Donald Trump’s priorities.

The outcome of the US election has increased the risks for the global economy, as trade wars and higher interest rates have the potential to derail the resilience of growth. Furthermore, regional divergences could widen as Europe and China will likely be facing a challenging environment, although policymakers have tools to mitigate the impact of Trump’s agenda