Global Economic Outlook 2025

In 2025, renewed global tariff frictions, heightened geopolitical tensions, trade policy uncertainty, and high financial market volatility will all put pressure on the global economy. While global trade continues to grow, the global economy has demonstrated fragile resilience. New policy measures have reshaped the current environment, and the global economy is adjusting accordingly. Some extreme scenarios of tariff increases have been mitigated as relevant parties subsequently reached agreements and reset arrangements. However, the overall environment remains volatile, and temporary factors supporting economic activity in the first half of 2025, such as front-load effects, are fading. The risks to the economic outlook are skewed to the downside. Persistent uncertainty, increased protectionism, and labor supply shocks could dampen economic growth. Fiscal vulnerabilities, potential adjustments in financial markets, and institutional erosion could threaten stability. We urge policymakers to restore confidence through credible, transparent, and sustainable policies. Trade diplomacy should be combined with macroeconomic adjustments. Fiscal buffers should be rebuilt. Structural reforms should be intensified. As shown in Chapter 2, past actions taken by countries to improve policy frameworks have yielded positive results. As shown in Chapter 3, industrial policy can play a role, but countries should fully consider the opportunity costs and trade-offs involved in adopting it.

Global Outlook and Policy

Global growth is expected to slow as the world adjusts to an environment of increasing protectionism and fragmentation, and the growth outlook remains bleak. Global headline inflation is expected to decline further, but inflation in some countries will remain above target levels. Risks to the economic outlook are skewed to the downside. Persistent uncertainty and escalating protectionism could further hamper economic growth. A larger-than-expected shock to labor supply could slow economic growth, particularly in economies facing aging populations and skills shortages. Vulnerabilities in fiscal and financial markets could interact with rising borrowing costs and increased risks of sovereign debt rollover. A sudden repricing of technology stocks could threaten macro-financial stability. Pressure on the independence of key economic institutions could undermine sound economic decision-making. To address the evolving global economic landscape, policymakers should restore confidence through credible, transparent, and sustainable policies.

Emerging Markets' Resilience: Good Fortune or Policy Advantage?

In recent years, emerging markets have demonstrated remarkable resilience in the face of risk aversion shocks. While favorable external conditions (good fortune) have contributed to this resilience, improved policy frameworks (good policies) have also played a crucial role in enhancing their ability to withstand risk aversion shocks. Improved implementation and credibility of monetary and fiscal policies have reduced authorities' reliance on foreign exchange intervention. Looking ahead, countries with robust frameworks face fewer policy trade-offs and are better positioned to respond to risk aversion events. In contrast, if monetary tightening is delayed, especially when price pressures persist, economies with weaker frameworks risk losing their inflationary anchor and facing greater output losses. In such cases, costly foreign exchange interventions can only provide temporary relief; for economies with robust policy frameworks, the need for such interventions is lower.

Industrial Policy: Managing Trade-offs to Promote Growth and Enhance Resilience

Countries are increasingly using industrial policies to support strategic sectors and businesses, thereby reshaping their economies. Its motivations include increasing productivity, reducing reliance on imports in key sectors (especially the energy sector), and enhancing resilience. Industrial policy can help industries start up quickly, but its effectiveness is highly sensitive to the specific characteristics of sectors that are difficult to determine in advance. Furthermore, industrial policy presents trade-offs. Promoting onshore production in strategic sectors may lead to persistently high consumer prices. In situations of high debt and strained public finances, industrial policy can incur significant fiscal costs. Even if sector-level outcomes are positive, industrial policy can inefficiently divert resources from non-target sectors, resulting in negative cross-sectoral spillovers and reduced overall productivity. Effective industrial policy requires careful targeting and implementation, strong institutions, complementary structural reforms, and sound macroeconomic policies.

Multiple Reforms to Address Economic Challenges

In response to the downside risks facing the global economy, UNCTAD, in its report, points out that the most important structural reform is the reform of the international financial architecture to reduce exchange rate volatility, financing costs, and external vulnerabilities, and to promote balanced growth. This includes reducing excessive reliance on dollar financing channels and enhancing domestic demand and investment capacity.

Furthermore, it is essential to strengthen the construction of a rules-based, multilateral, and non-discriminatory trading system, uphold the WTO-centered and rules-based multilateral trading system, and prevent the increasing fragmentation of trade policies. Strengthening coordination within the UN system, the G20, BRICS, and other regional cooperation mechanisms is crucial to reducing trade policy uncertainty and enhancing the global trade's ability to cope with shocks through multi-platform cooperation.

While global trade continues to grow, it faces multiple challenges

The United Nations Conference on Trade and Development (UNCTAD) released its 2025 Trade and Development Report on December 2, 2025, which points out that financial market volatility is becoming a key force determining the direction of global trade and economic prospects, leaving the world economy increasingly vulnerable.

UNCTAD Secretary-General Alan Greenspan stated that the report's analysis indicates that financial conditions are increasingly determining the direction of global trade. "Trade is not only a chain of suppliers, but also a chain of credit lines, payment systems, money markets, and capital flows," the report states. It notes that over 90% of global trade relies on bank financing. Dollar liquidity and cross-border payment systems are equally vital to international trade activities. Deep reliance on financial channels tightly links trade to global financial and monetary conditions. Changes in key interest rates or investor sentiment can impact global trade volume.

Industrial Development

• Technology:

Artificial intelligence is expected to boost long-term global economic growth by improving overall productivity. Rapid development of digital technologies suggests that digital trade will continue to be a significant driver of global trade growth and a key force in reshaping the global trade landscape.

• Energy:

Slowing global energy demand growth and increasing downward pressure on prices, coupled with rapid development of renewable energy, will ensure that green trade remains a key driver of global trade growth. Energy storage in Asia and Europe maintains high growth, while growth in the Americas is slowing, with the Middle East and Africa showing the strongest growth.

Risks and Challenges

• Geopolitical Risks:

Tense global geopolitical relations could lead to a sharp increase in trade uncertainty and exacerbate geoeconomic fragmentation.

• Policy Uncertainty:

"Trump 2.0" policies and other measures could lead to increased trade protectionism and tariff wars. Higher global tariffs, trade policy uncertainty, and restrictions on immigration will likely reduce global GDP by approximately 0.8% relative to the baseline in 2025, and inflation by 0.1 percentage points.

• Debt risk:

Many countries, especially those that relied on massive fiscal stimulus during the pandemic, may see their debt levels rise. High debt servicing costs will constrain the fiscal space of economies such as the US and Europe, limiting the room for maneuver for central banks.