The global economy is entering the new year with rising geopolitical tensions and uncertainty, as leading central banks attempt to cut interest rates after a worst inflation shock in decades. The outlook for economic growth remains uncertain, with many experts warning of a “stagflation” scenario where growth stalls but inflation remains high.
Donald Trump’s second term in office is expected to dominate the economic agenda, with global trade tensions on the horizon as he threatens to impose sweeping tariffs on US imports. Britain’s economy is faltering, while the eurozone is engulfed in political turmoil. Beijing is battling to revive the Chinese economy, and countries in the global south are facing soaring debt interest payments.
Central banks have begun cutting interest rates in 2024, but many economists are hesitant to predict further reductions, citing lingering inflationary pressures and concerns over economic growth. The Bank of England has forecast that inflation will remain above its 2% target until 2027, and wage growth remains stronger than anticipated, which could stoke inflation.
Britain’s economy is on the brink of stagnation, raising concerns about a “stagflation” scenario. Employment rates are also a major concern, with over 9 million people in Britain being economically inactive before the Covid pandemic. The government will prioritize fixing public services and implementing changes to jobcentres and employment support from the spring.
Governments around the world are facing challenges from higher borrowing costs, and investors could demand higher returns if lending to governments with elevated deficits. The return of “bond vigilantes” is a threat to sovereign borrowing costs, as lenders question their ability to pay back debt.
In summary, the global economy enters 2025 with rising tensions and uncertainty, driven by Trump’s trade policies, Britain’s faltering economy, and lingering inflationary pressures. While some experts remain optimistic, many warn of a “stagflation” scenario and the need for governments to prioritize fiscal consolidation and public spending reforms.
Source: https://www.theguardian.com/business/2024/dec/28/trump-versus-trade-the-global-economic-outlook-for-2025-in-five-charts