Convera is excited to launch the Are You Ready for 2025? report, which offers in-depth analysis of the key trends, risks, and opportunities for businesses as we enter what could be a stabilizing year, or the calm before another storm.
Download Are you Ready for 2025?
The economic rollercoaster of the early 2020s—marked by a global pandemic, inflationary surges, and seismic interest rate hikes—has finally started to slow. Yet, with global growth projected to hover at just under 3%, the question remains: Will 2025 be the year the world economy finds its balance, or are we still bracing for the next curve?
Download the full Are You Ready for 2025? report to gain a deep understanding of global growth expectations, the divergence in central bank policies, the return of fiscal discipline, and the impact of geopolitical alignments. Arm yourself with the knowledge to confidently navigate the complexities of 2025.
Modest expansion to continue
The global economy is projected to be about 15% larger at the end of 2024 than it was in 2019, driven by post-pandemic stimulus and resilient consumer spending. This significant growth underscores a remarkable recovery, defying the odds set by aggressive rate hikes in the US that couldn’t derail the momentum.
Yet, challenges linger. Inflation, which peaked at 7.5%, has halved, but services inflation remains persistent, keeping global rates stubbornly above 3%. Only a quarter of central banks are hitting their 2% targets, a stark contrast to nearly half just a few years ago. This discrepancy in achieving inflation targets reflects the ongoing struggle to stabilize prices globally.
Moreover, the Chinese housing market experienced its worst year in over a decade in 2024, while rising energy costs and soaring interest rates have hit investment hard in Europe and Japan. Industrial production has declined, and bankruptcies are surging. Mortgage rates have also fluctuated significantly, influenced by Federal Reserve actions, impacting homeowners and refinancing activity.
Despite these setbacks, unemployment in advanced economies has fallen below 4% for the first time since the early 1990s, signaling robust labor markets and a potential cushion for economic activity, even amid concerns of a global recession and economic stability.
Consumer confidence is rebounding, and real wages are finally outpacing inflation, potentially fueling steady growth into 2025. However, this optimism is fragile—any spike in unemployment or escalating trade tensions could quickly reverse fortunes. With global GDP set to grow at 2.7% next year, just below pre-pandemic norms, the path forward remains fraught with growth slowdown and uncertainty.
Inflation to fall in absence of trade shocks
While supply chain pressures have eased, and fiscal policy has returned to more reasonable levels, geopolitical tensions could upend this delicate balance. Even if inflation drops to 2% in Europe, Japan, and China, countries like the US, UK, and Australia may struggle to get below 2.5%.
The real wildcard is trade disruptions. If global tensions escalate, supply chains could tighten, causing prices to surge again, pushing us into a new era of persistent, volatile inflation that defies expectations.
In short, disinflation is making progress, but it’s a fragile victory. Beyond 2025, signs of a more fragmented world trade order and less prudent fiscal policy are likely to anchor inflation volatility above the level seen during the previous decade. Inflation looks to remain higher for longer.
Divergence to drive moves
Global central banks are walking a fine line between stimulating economies and battling inflation. This has heightened monetary policy uncertainty and increased FX volatility. The unprecedented spike in monetary policy uncertainty over 2022-2023, when central banks delivered more than 600 rate hikes globally, pushed G10 policy rates to 4% by early 2024.
Despite 100 rate cuts this year, policy rates remain elevated, and central banks are diverging sharply in their approaches. Emerging markets like Brazil and Mexico have aggressively cut rates, weighing on their currencies, while BoC, ECB, SNB, and BoE began cutting even as the Fed held rates steady. This divergence creates a challenging landscape for forex traders and businesses alike.
Meanwhile, Japan and China have defied the global trend: China cut rates to stimulate growth, while Japan’s shift from record-low rates to hikes in July triggered a 10% appreciation for the yen. These differing strategies reflect the unique economic pressures and priorities of each country, further contributing to market volatility.
As inflation becomes less of a concern, central banks are likely to keep cutting rates to support growth. However, the global monetary impulse is expected to decline further, potentially increasing market volatility and leading to lower volatility. Still, elevated monetary policy uncertainty remains a concern.
The prevalence of fixed rate mortgages in various countries also plays a role, as households with shorter fixation periods may be more vulnerable to rising interest rates. Businesses need to stay agile and adjust their trading strategies to navigate this complex environment.
Fiscal discipline and interest rates back on the radar
As global economies stabilize post-COVID, governments are reconsidering their spending strategies. Fiscal expansion has been essential for sustaining growth and countering central banks’ restrictive policies, but the tide is shifting. In the US, fiscal support has added 25bps to GDP growth over the past year, cushioning the impact of higher interest rates.
However, the US Congressional Budget Office projects the federal deficit to swell from 5.6% of GDP in 2024 to 6.1% in 2025, driven mainly by rising interest expenses rather than direct economic stimulus. This growing deficit highlights the importance of fiscal discipline in maintaining economic stability.
Across the Atlantic, the UK faces a tough fiscal outlook, with a potential new government likely to implement austerity measures. Meanwhile, Europe’s fiscal rules are tightening, pressuring countries like France and Italy to achieve surpluses exceeding 1.5% of GDP to rein in public debt. These measures reflect a broader trend of tightening fiscal policies to manage high debt levels.
Even with these challenges, markets remain hopeful. Strong demand in bond auctions suggests confidence in a soft economic landing. However, this optimism may be tested as the US debt ceiling looms again in early 2025. Failure to resolve this could spike US borrowing costs, tighten global financial conditions, and ripple across advanced and emerging markets, adding to the complexity of managing fiscal health in an era of heightened debt sensitivity.
Geopolitical alignment matters
Global trade is reaching new heights, but fragmentation looms as geopolitical tensions rise. Gone are the days of stable international relations. The intensity of conflicts is now at its highest since the 1980s, and annual trade interventions have soared, driven by protectionist policies across North America, Europe, and East Asia.
While equity markets seem unaffected, the real danger lies in the growing fragmentation of global trade. Companies are shifting strategies, prioritizing “friend-shoring” and aligning supply chains based on geopolitical considerations rather than cost. Consumers are also reacting: Chinese buyers are turning to local brands, and Western companies are reassessing risks tied to Chinese markets.
With rising polarization and domestic pressures in major economies, this trend is set to continue. Companies need to diversify and realign strategies to navigate an increasingly fragmented global landscape. Failure to do so may leave them vulnerable in a world where political alignment drives business decisions.
The road to 2025: Opportunities and risks for global businesses
As we look ahead to 2025, businesses should brace for a year that may feel deceptively calm on the surface but could still be fraught with potential pitfalls. Despite positive signs like stable global growth and easing inflation, economic uncertainty and geopolitical tensions remain.
While the promise of a “normal” year is tempting, the lessons of the past remind us to be cautious. A robust risk management strategy will be crucial as businesses step into 2025. With economic indicators pointing to stability but underlying uncertainties such as geopolitical tensions, fluctuating interest rates, and potential labor market shifts, having a clear plan to manage these risks can be the difference between thriving and merely surviving.
Download the full Are You Ready for 2025? report to explore how your business can navigate these challenges and capitalize on the opportunities ahead.
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