The global economy in 2025 will face major challenges that will test policymakers, companies and society as a whole. Despite the relatively stable performance of recent years, new challenges are mounting, from geopolitical tensions to the environmental transition. In this article, we highlight the key challenges that will affect the world's economic situation, based on expert analyses.
↑ Geopolitical tensions
Increased geopolitical tensions remain a major threat to the global economy in 2025. Conflicts between the US, China and Europe continue to deepen, leading to an increase in protectionism. The US is actively imposing duties on Chinese goods and China is increasing subsidies for its industries. Such measures undermine World Trade Organisation (WTO) rules, posing risks to the global trading system.
The European Union is also facing internal divisions, preventing a unified strategy. Trying to reduce dependence on China and protect its strategic industries requires significant investment, which becomes even more difficult under budgetary constraints. Global protectionism is increasing pressure on international organisations and calls for a reassessment of their role in the new economic order.
↑ Ecological transition
The ecological transition is becoming an important task, but it also poses challenges for the global economy. Various approaches are being considered in Europe, including recycling, opening ‘responsible mines’ and reducing dependence on imports of rare earth metals. However, realising these measures requires significant resources and time.
↑ The key measures being discussed are:
- Launching recycling programmes and reducing single-use materials;
- Opening new mines that comply with environmental standards;
- Reducing imports of raw materials through the development of domestic industry.
China, on the other hand, remains a leader in this area due to its abundant natural resources and processing capacity. European companies find it difficult to compete in this environment, leading to increased market tensions. The success of the ecological transition depends on the balance between sustainable development and financial stability, which is becoming a key issue for all countries.
↑ China's problems: Domestic instability and external challenges
The Chinese economy is facing internal and external challenges. Demographic ageing and instability in the financial system threaten long-term sustainability. Increasing bank failures indicate the vulnerability of the sector despite government consolidation efforts.
In the external arena, China faces increasing competition. Its export strategy and the New Silk Road initiative are losing support among partners, slowing economic development. Increasing protectionism in the US and Europe is pushing Beijing to strengthen its domestic market and increase investment in technological independence. However, this requires significant effort and a review of current strategy.
↑ Labour market transformation
The development of artificial intelligence and the ecological transition are radically changing the labour market. Artificial intelligence is beginning to replace not only routine tasks, but also cognitive occupations, increasing the polarisation between skilled and unskilled workers.
↑ Implications of such changes include:
- Increased demand for AI and programming professionals;
- The need for large-scale retraining for workers in traditional sectors;
- Increased inequality between high-skilled and low-skilled labour.
By contrast, the green transition is creating new jobs in green sectors of the economy. However, retraining employees requires significant resources, which becomes a major challenge for companies and states. The outcome of these changes depends on the ability of countries and organisations to adapt to the new realities, ensuring labour market stability.
↑ Inflation and the role of central banks
The problem of inflation, which has plagued economies in recent years, is gradually receding into the background. Nevertheless, central banks are facing the consequences of their past decisions, such as the policy of quantitative easing. This strategy, aimed at combating deflation, resulted in huge balance sheets that were not balanced by rising interest rates in the face of a new wave of inflation.
The central banks‘ problems are caused by two main factors: low returns on assets purchased under quantitative easing and rising costs of servicing commercial banks’ deposits. Although experts are confident that central banks can cover their losses with future profits without damaging the system, this does affect the allocation of resources in the economy.
One complication is that central bank losses reduce the revenues of governments, which usually rely on their profits. Moreover, commercial banks, by contrast, benefit from rising interest rates, which reinforces the unequal distribution of economic gains. Public opinion must be convinced that such central bank losses are part of an overall strategy and not a consequence of mismanagement.
↑ Europe and the US: Differences in fiscal policy
Differences in fiscal policy approaches between Europe and the United States are becoming increasingly apparent. The United States continues to pursue an expansionary fiscal policy, investing heavily in infrastructure, technology and the development of strategic industries. This policy, labelled by US Treasury Secretary Janet Yellen as a ‘modern supply-side policy’, involves significant government involvement in stimulating growth.
At the same time, in Europe, budgetary constraints remain strict, despite the need to invest in environmental transition and technological development. The adoption of the revised Stability Pact in April 2024 has effectively closed off opportunities for large-scale public investment. Germany, for example, has been hampered by its traditional export orientation, as well as a lack of investment in the construction sector and energy infrastructure.
European countries are trying to compensate for this gap through a more prudent allocation of resources and the development of joint initiatives. However, disagreements among EU members, especially over green energy and competition with China, continue to hamper a unified approach. This poses a threat of weakening Europe's position against the backdrop of a global industrial race that is being vigorously pursued by the US.
↑ The future of multilateral trade
The multilateral trading system established under the auspices of the WTO is undergoing a serious crisis. The organisation's basic principles, such as transparency and non-discrimination, are increasingly being violated. An example is the increase of US customs duties on Chinese goods, which contradicts the rules of non-discrimination. China, in turn, subsidises its industrial sectors, violating the principles of transparency.
The impact of protectionism is becoming increasingly visible. The American Inflation Reduction Act, aimed at supporting national producers, has also caused controversy, as its provisions contradict the rules on equal terms of trade. Experts warn that the continuation of such policies could finally destroy the multilateral trading system, and global economic relations risk shifting to a model of bilateral or regional agreements.
The impact of the US elections remains an important factor. If a candidate who supports rigid protectionism wins, the global trading system could face even greater challenges. For example, Donald Trump's possible return to power could lead to a new phase of trade wars, affecting 10 per cent of global trade. This could be a blow to already fragile international relations.
The WTO, according to experts, needs urgent reform to meet the new realities. If the organisation can adapt and implement updated mechanisms to resolve trade disputes and protect free trade principles, it could be a step towards restoring confidence in multilateral trade. However, without a concerted effort by the world's largest economies, the recovery of the system remains in doubt.
↑ Conclusion: Top challenges for the global economy
The year 2025 will be an important test for the global economy. Geopolitical tensions, environmental transition, labour market and inflation challenges require an integrated approach and international cooperation. The future of the economy depends on the ability of countries to adapt to new challenges, invest in sustainable development and build effective mechanisms of interaction. Only such measures will preserve global stability and ensure economic growth.
Wilfredo Huppert
Wilfredo Huppert is a war journalist with 25 years of experience. He has spent most of his life in military journalism, wars and military-political conflicts, treason investigations and much more.