With inflation, interest rates, and tariffs dominating discussions, 2025 is positioned to be an intriguing year for the global economy. The International Monetary Fund predicts growth will stabilize yet remain modest at 3.2%. But what are the implications for individuals and businesses worldwide?
Just days before Christmas, American borrowers received a pleasant surprise with the third consecutive interest rate cut. However, stock markets reacted negatively as US Federal Reserve Chair Jerome Powell indicated that 2025 may not bring as many cuts as anticipated. The ongoing struggle against inflation remains a priority.
Recent years have seen significant price surges due to the Covid-19 pandemic and the war in Ukraine. While inflation rates are still rising, the acceleration has slowed considerably, with the US, eurozone, and UK reporting growth rates of 2.7%, 2.2%, and 2.6%, respectively, in November. Central banks are finding it challenging to meet the inflation target of 2%, especially amid economic instability.
Luis Oganes, head of global macro research at JP Morgan, highlights that a significant source of uncertainty stems from potential changes under “Trump 2.0.” Following Donald Trump’s election victory in November, he has continued to threaten new tariffs against major trading partners, including China, Canada, and Mexico.
Oganes noted, “The US is adopting a more isolationist approach, raising tariffs to bolster domestic manufacturing.” While this could temporarily benefit the US economy, it poses risks for countries dependent on trade with the US.
Maurice Obstfeld, a former IMF chief economist, warns that new tariffs could severely damage countries like Mexico and Canada and disrupt critical supply chains in industries such as automotive manufacturing. This disruption could lead to rising prices, reduced demand, and ultimately a decrease in investment.
The tariff discussions have also impacted Canadian politics, leading to the resignation of Prime Minister Justin Trudeau. For China, the impending tariffs present significant challenges. President Xi Jinping recently acknowledged the uncertainties ahead but maintained that the economy is on an upward trajectory. However, tariff-induced demand decreases could exacerbate existing economic issues, including weak consumer spending.
Despite these challenges, the World Bank has raised China’s growth forecast for 2025 to 4.5%. Government efforts to enhance domestic demand and attract foreign investment are ongoing, as many foreign companies seek alternatives to China amidst rising tensions.
Electric vehicle production is likely to remain a focal point in global trade tensions, with China emerging as a key player in this industry. The tariffs imposed by the US, Canada, and EU have sparked disputes with China at the World Trade Organization.
Christine Lagarde, president of the European Central Bank, voiced concerns over the potential negative impact of protectionist measures on growth and inflation in Europe. Traditional economic engines, such as Germany and France, face political instability, which could affect their economic performance in 2025.
In the UK, inflationary pressures may arise from rising taxes and wages. Despite efforts to lower eurozone interest rates, domestic inflation rates remain substantially above targets, complicating economic recovery efforts.
As the global job market faces stagnation, a vibrant economy could invigorate hiring and economic dynamism, according to Sander van ‘t Noordende, CEO of Randstad.
Donald Trump’s return to the White House on January 20, 2025, may bring a series of economic initiatives, including tax cuts and deregulation, aimed at strengthening the US economy. The future policies will significantly influence global economic stability, emphasizing the interconnectedness of international markets.
Credit: BBC News
