Future Forecast - Worldwide Economic Instability
Executive Summary
The global economy in 2025 faces significant challenges that could lead to widespread economic instability. Key factors include escalating trade tensions, geopolitical conflicts, environmental crises, and technological disruptions. This report examines these issues in detail to assess the potential for a global economic downturn.
1. Escalating Trade Tensions
The recent trade policies implemented by the United States, particularly under President Donald Trump, have introduced substantial tariffs on imports from key trading partners such as Canada and Mexico. The Organisation for Economic Co-operation and Development (OECD) has warned that these measures are dampening global economic growth and fueling inflation. Global growth is projected to slow to 3.1% in 2025 and 3% in 2026, with sustained inflationary pressures. The United States is expected to see its GDP growth decrease to 2.2% in 2025 and 1.6% in 2026. Canada's growth is anticipated to be halved, and Mexico is facing a potential recession.
The OECD emphasizes the need for countries to collaborate within the global trading system to prevent escalating trade barriers, warning of severe economic consequences, including reduced living standards, higher inflation, and increased interest rates.
Donald Trump’s trade war will damage global growth, OECD warns
2. Geopolitical Conflicts
The World Economic Forum's Global Risks Report 2025 identifies state-based armed conflict as the most pressing immediate global risk, with nearly a quarter of respondents ranking it as the most severe concern for the year ahead. This reflects heightened geopolitical tensions and fragmentation globally.
'Fractured global landscape...' - World Economic Forum’s Global Risks Report highlights top threatsThe destabilizing consequences of ongoing conflicts, such as Russia's invasion of Ukraine and unrest in the Middle East and Sudan, are likely heightening concerns about global economic stability.
3. Environmental Crises
Environmental risks dominate the longer-term outlook, with extreme weather events, biodiversity loss, and ecosystem collapse leading the 10-year risk rankings. The year 2024 was the hottest on record, significantly impacted by severe weather. Extreme weather events are expected to remain a pressing threat in the next decade.
These are the biggest risks we face now and in the next 10 years4. Technological Disruptions
The rapid advancement and adoption of artificial intelligence (AI) technologies present both opportunities and risks. Concerns about adverse outcomes of AI technologies are expected to grow, ranking sixth in the 10-year risk timeframe. Additionally, cyber espionage and warfare are prominent short-term risks, reflecting the increasing frequency and sophistication of cyber-attacks.
These are the biggest risks we face now and in the next 10 years5. Financial Market Volatility
Recent market declines and economic turbulence following U.S. trade policies have raised concerns about a potential recession. The S&P 500 has fallen by 9%, and U.S. Treasury Bonds have seen an 8% increase, indicating market fears and rising interest in safe assets. Central banks face critical decisions on whether to adjust monetary policies to stimulate the economy or maintain current stances, risking a deeper recession.
No Fed 'put' when it's unclear which way the economy may pivotConclusion
The convergence of escalating trade tensions, geopolitical conflicts, environmental crises, technological disruptions, and financial market volatility presents a precarious economic landscape in 2025. While these factors individually pose significant challenges, their simultaneous occurrence amplifies the risk of a global economic downturn. Coordinated international efforts are essential to mitigate these risks and promote economic stability.
Recommendations
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Promote International Trade Cooperation: Nations should engage in dialogue to reduce trade barriers and resolve disputes amicably, fostering a stable global trading environment.
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Enhance Geopolitical Stability: Diplomatic efforts must be intensified to resolve ongoing conflicts and prevent the emergence of new ones, thereby reducing geopolitical risks.
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Address Environmental Challenges: Global commitment to environmental sustainability is crucial. Implementing policies to combat climate change and protect biodiversity can mitigate long-term economic risks.
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Manage Technological Risks: Establishing ethical guidelines and regulatory frameworks for emerging technologies, particularly AI, can prevent adverse outcomes and ensure beneficial integration into economies.
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Stabilize Financial Markets: Central banks and financial institutions should monitor economic indicators closely and be prepared to adjust monetary policies to maintain market stability and prevent recessions.
By addressing these areas proactively, the international community can work towards averting a potential global economic crisis and ensuring sustainable growth for the future.
