The global economy is expected to weaken in 2025 as it faces significant challenges, including impending US policy shifts and increased fragmentation, according to the latest Chief Economists Outlook from the World Economic Forum.
Some 56 percent of the leading chief economists worldwide expect weaker global conditions in 2025 compared to only 17 percent foreseeing an improvement, according to the report released this month.
“The latest Chief Economists Outlook reveals a global economy under considerable strain,” said the paper. “The growth outlook is at its weakest in decades and political developments both domestically and internationally highlight how contested economic policy has become.”
The International Monetary Fund’s (IMF) latest projection is that the global economy will expand by 3.2 percent this year, unchanged from 2024, and that it will slow down marginally to 3.1 percent over the next five years.
Following the recent US presidential election, the chief economists think American policy will exert a drag on global economy in the form of a “long-term shift” rather than a short-term disruption. Major changes are expected in areas such as trade, migration, deregulation, fiscal policy and industrial policy.
However, the economic experts continue to expect significant divergence across regions.
For South Asia, they expect strong or very strong growth in 2025, driven largely by India, which remains the world’s fastest growing major economy.
The countries of ASEAN (Association of Southeast Asian Nations) have been seeing strong growth as well, and regional GDP or gross domestic product is expected to expand by 4.7 percent in 2025.
Europe, on the other hand, is expected to register weak or very weak growth.
In addition to subdued global growth prospects, the outlook reveals intensifying pressures on the world’s economic interconnectedness.
About 94 percent of the economists predict further fragmentation of goods trade over the next three years, while 59 percent expect services trade to follow a similar path.
More than three-quarters also foresee higher barriers to labor mobility, while almost two-thirds point to rising constraints on technology and data transfers.
The financial sector stands out as an exception, with less than half of the chief economists expecting an increase in fragmentation.
Nevertheless, domestic and international political developments, supply chain realignments, and security concerns loom large. “These shifts are likely to push up costs for businesses and consumers alike over the next three years,” said the report.
Business responses to the increasing fragmentation of the global economy are expected to include restructuring supply chains, regionalizing operations, and focusing on core markets.
The chief economists anticipate an increase in global trade volumes in 2025, underscoring the resilience of global commerce. However, a large majority expect intensifying trade tensions.
Protectionism is identified as the primary driver of lasting changes to global trade patterns, followed by conflict, sanctions and national security concerns.