The year was also notable for an unprecedented number of elections worldwide, leading to political shifts that introduced new uncertainties into global markets, including the return of Donald Trump as President of the United States of America, which signalled potential shifts in trade, fiscal, and geopolitical policies. Additionally, geopolitical tensions, particularly in Eastern Europe and the Middle East, escalated, contributing to market volatility and impacting energy prices. On balance: a year of highs and lows, of progress and uncertainty. 

Given this backdrop, should we expect the global economy to continue its current trajectory, or are we poised for a shift?

Inflation: a cautious outlook

In the aftermath of COVID-19, inflation rose to its highest level since 1981 as the world struggled to recover. In 2022, the start of the Russia-Ukraine war further exacerbated inflationary pressures due to its impact on energy prices and already weakened supply chains.   

After this prolonged period of high inflation, predictions for 2025 indicate a cautious optimism that the worst is behind us. The International Monetary Fund (IMF) forecasts a continued decline in consumer prices throughout 2025, towards 2% target levels. However, core inflation, which excludes volatile food and energy prices, remains stubbornly high, indicating that underlying price pressures are yet to be fully tamed. Structural factors such as strong labor markets, geopolitical uncertainties, and new trade policies like tariffs may continue to exert inflationary pressures, keeping central banks on alert.   

The US economy has shown resilience in the face of global challenges. Whilst growth is expected to moderate, it remains a bright spot in the global landscape. However, the election of Donald Trump marked a watershed moment for the global economy, injecting a further dose of uncertainty into the outlook.

The policy environment in the US has become very uncertain, making conventional macro forecasting difficult. However, whilst the full "Trump effect" on trade policy (tariffs), immigration policy, and regulation is something that can only be observed over time – and in real time, it’s expected to have far-reaching implications, both domestically and internationally.  

China, the world's second-largest economy, is facing a significant slowdown in growth. GDP growth has fallen well below the government's target, with concerns rising about deflation and the ongoing crisis in the property sector, where major developers are struggling with debt.

The government's "bazooka" stimulus package, introduced in late 2024, was conceived with the objective of reigniting economic momentum through substantial infrastructure spending, tax cuts, and measures to boost consumer spending. However, the effectiveness of this initiative remains uncertain. Some analysts argue that it may not address the fundamental structural issues facing the economy, such as high local government debt and declining productivity growth.

A substantial slowdown in China carries significant risks for the global economy, potentially impacting commodity prices and global trade flows, particularly for emerging markets relying on Chinese demand.

Major central banks, including the US Federal Reserve, the Bank of England, and the European Central Bank, are expected to continue cutting interest rates in 2025. However, the pace of cuts is likely to be gradual as policymakers balance the need to support growth with the risk of reigniting inflation.

The US dollar is expected to maintain its strength in 2025, posing challenges for other major currencies. The Euro, British pound, and Chinese yuan are all expected to face headwinds against the greenback. This currency dynamic could have significant implications for international trade and investment flows.

Closer to home…

Looking to the UAE, the local economy is projected to maintain its robust performance in 2025, projected to grow at 4.5% year-on-year, as per the Central Bank of the UAE, building on its established momentum and capitalising on strategic diversification efforts. Growth is expected to be driven by a combination of factors, including continued strength in both the oil and non-oil sectors. Whilst the oil sector remains a significant contributor to the UAE's economy, the nation's commitment to diversification has already demonstrated impressive results, with the non-oil sector now playing an increasingly prominent role - reflecting impressive strides in key sectors such as tourism, real estate, financial services, and advanced manufacturing.

The government's leadership and ongoing strategic initiatives are fundamental to the UAE's strong economic performance, consistently demonstrating a commitment to long-term economic planning and implementing policies that promote sustainable growth. Initiatives such as the "We the UAE 2031" vision, which outlines the country's development goals for the next decade, which has set ambitious target of doubling the UAE GDP from AED 1.49 trillion to AED 3 trillion by 2031, provide a clear roadmap for future economic growth. These initiatives, coupled with ongoing investments in education, infrastructure, and technology, are creating a strong foundation for the UAE's future prosperity. 

An overall outlook?

Overall, the global economic landscape in 2025 presents a complex and dynamic picture. Whilst there are indeed reasons for cautious optimism, such as moderating inflation and the resilience of certain economies, significant uncertainties remain. The "Trump effect" on US policies, China's prolonged economic slowdown, geopolitical tensions and conflict and the trajectory of interest rates all have the potential to disrupt the global economy.

Navigating these challenges will require careful risk monitoring and analysis, as well as a flexible approach. Staying informed and adapting strategies proactively will be crucial for businesses and investors to thrive in this evolving environment. 

In all scenarios, the year 2025 promises to be a pivotal one, and those who can effectively adapt to and capitalise on these shifts will be well-positioned for long-term success.