Chief economists look ahead to 'particularly complex' year of tariffs and tensions

Divergence and fragmentation.

The latest World Economic Forum Chief Economists Outlook reflects concerns about both; divergence in terms of parts of the world likely to enjoy enviable amounts of growth relative to a more sluggish pace elsewhere, and fragmentation in relation to imperiled trade relations.

It’s no surprise that looming policy shifts weigh more heavily than usual on the minds of the economists these days.

The incoming US administration, after all, has signaled that its trade policy may lean heavily on prohibitive tariffs. And potentially interventionist industrial policy in other countries, turning their focus decisively inward, could further divide a relatively open, global system that’s steadily managed to reduce the gap between rich and poor countries over the years.

The majority of chief economists surveyed for the outlook expect the global economy to weaken in 2025; just 17% anticipate improvement. A majority also think US policy will have a significant impact, in the form of a “long-term shift.”

In addition to further protectionism, fragmentation, and increased inflation, other points of concern include conflict and rising public debt levels.

Among the potential positives: stock-market gains, and overall trade volumes that, despite the turbulence, will likely continue to increase.

The following are insights from a dozen chief economists.

“The global economic landscape has become increasingly complex amid permanently disrupted historical trends. A reconfiguration of the world order, shifting patterns of growth and trade, and multiple crosscurrents driven by policy uncertainty, macroeconomic volatility, and geopolitical conflicts are evolving. The implications of these turbulent forces remain unclear – keeping overall risks widespread and elevated.

“Yet, opportunities also abound, shaped by dramatic transformations that are unfolding and driving large spending in areas like technological buildouts led by AI and the low-carbon retooling of industries and countries. Against this backdrop, maintaining a healthy risk appetite while navigating heightened uncertainty will shape the coming year.

“The remarkable resilience in global growth despite the rapid rise in interest rates has set the stage for further economic expansion ahead, as central banks have started on a policy easing path. Inflation will continue to normalize although downside risks have fuelled speculation of a resurgence in price pressures. This is partly underpinned by the extreme uncertainty surrounding the policy platform of the new incoming presidency in the US and its potential to stoke global disruptions.

“Meanwhile, as the world’s major economies face long-term structural challenges including concerns over fiscal dynamics amid rising debt levels, ageing populations, and the need for massive investments to upgrade infrastructure, the US is likely to continue outperforming. At the same time, in the emerging markets space, Asia and the GCC countries are expected to drive global growth and investments, with prospects for China also showing signs of improving in the short-term.”

“After years of recession fears that did not materialize, global economic growth in 2025 is projected to improve modestly over last year. However, it will remain below pre-pandemic averages and unevenly distributed. The US is expected to maintain resilience, growing near historical trend, while the eurozone and China are expected to continue to perform below trend.

“2024 brought significant political change across many nations. It set the stage for 2025 to reflect efforts to reshape priorities amidst geopolitical tensions and sluggish growth. Trade and immigration will be brought into sharper focus, compounding longer-term challenges such as global supply chain redesign, a delayed green transition, demographic shifts, and high debt levels. These dynamics may keep costs elevated and inflation sticky, likely forcing interest rates to remain higher for longer.

“On the other hand, political shifts could usher in pro-growth policies like tax cuts and deregulation, especially in the US. A key question is whether the net effect of the policy mix would be growth-stimulative while preserving price stability, whether this would be sustained over time, and whether it would extend beyond the U.S. to foster global prosperity.

“Sustaining long-term growth paired with nominal stability will hinge on economies’ ability to enhance productivity at scale and at speed, particularly through AI adoption. Encouraging indicators include eight consecutive quarters of US labor productivity growth and a surge in the intent to adopt AI, with 31% of large companies planning implementation within six months, up from 8% a year ago.”

“The global economy is expected to maintain modest momentum in 2025. Real GDP growth should remain stable at 3.2% – on par with the expected advance in 2024 – but we foresee strongly desynchronized growth patterns across regions amidst rising trade tensions.

“In the US, economic activity is expected to remain robust, supported by solid income and productivity, even as real GDP growth converges from 2.8% in 2024 to 2.2% in 2025. In Europe, easing inflation should support mildly stronger income and consumer spending growth while business investment accelerates modestly. Real GDP growth in the euro area and UK should surpass 1 while real GDP growth in Japan is likely to accelerate toward 1.0% driven by a gradual acceleration in real wages and consumer spending.

“Emerging markets are anticipated to grow at 4.1% in 2025, down from 4.2% in 2024. We foresee real GDP growth in mainland China slowing to 4.5% in 2025 as structural property sector and demographic challenges will restrain economic activity despite fiscal and monetary policy support. India should remain a bright spot, with real GDP growth expected at 6.5%, driven by public investment and strong domestic demand. Latin America is expected to see weaker expansion in 2025, with Brazil’s GDP growth slowing to 1.3% amid fiscal constraints.

“Global inflation should decline steadily from 4.5% in 2024 to 3.4% in 2025 – still somewhat higher than the 3.1% pace in 2019. However, risks to the global inflation outlook will be tilted to the upside given the prospects of increased protectionism, geopolitical tensions, derisking, and demographic constraints.

“In a world increasingly subject to supply shocks, central banks will tread carefully. We anticipate widespread monetary policy desynchronization in 2025 as central bankers respond to divergent domestic and international conditions. The Fed will likely ease policy more gradually than the European Central Bank while the Bank of Japan tightens policy prudently in the face of a virtuous wage-inflation dynamic.”

“Developed economies start 2025 with firm foundations. Consumers have low fear of unemployment, rising real incomes, and reasonable savings. Market-driven inflation pressures are contained. The tendency to prioritize spending on having fun over goods has some characteristics of a structural shift. Even without a Taylor Swift concert tour in 2025, the goods’ share of the global economy is unlikely to increase.

“The main economic risks are twofold. The quality of economic data has deteriorated markedly in recent years, with survey response rates collapsing and structural economic change generating data blind spots. Policy error risks have also risen, as ‘data dependency’ relies on undependable data. Loss aversion means economists are reluctant to abandon models, even as data unreliability distorts the outputs.

“Uncertainty about the consequences of the rapid pace of economic change has fuelled fear about different groups’ declining relative economic and social status. This fear encourages economic scapegoating and prejudice politics. Foreigners are a convenient economic scapegoat, and the related form of prejudice politics – economic nationalism – is already evident. Economic nationalism will likely affect global trade, capital, and labour flows in 2025. The question is whether economists’ arguments can limit the trend and subsequent economic damage.”

“If you were to restrict your field of view just to the next two years, you might think the global economy is stabilizing nicely. The World Bank’s latest forecasts call for it to grow 2.7% in both 2025 and 2026 – the same pace as in 2024. Inflation has subsided; it’s now at or below central-bank targets in more than half of all economies.

That is certainly good news. But it obscures the long-term tragedy unfolding in developing economies – especially the poorest 26 among them. Developing economies began the century on a course to close the income gap with the wealthiest economies, but are now for the most part pulling farther behind. Most of the forces that powered their rise after the year 2000 have since dispersed. In their place have come fierce headwinds: high debt, weak investment and productivity growth, ageing populations in many countries, rising trade tensions, and the mounting dangers of climate change.

That means developing economies will need a new playbook for the coming years –one that enables them to accelerate progress at home while becoming more resilient to external shocks. A good first step would be to capitalize on the tighter trade and investment links they have built with one another. Today, more than 40% of the goods they export go to other developing economies, double the share in 2000. They’re also an increasingly important source of capital flows, remittances, and development assistance going into other developing economies.

Developing economies, in short, can reap significant rewards by accelerating reforms to attract investment and deepen trade and investment ties with one another—and with all who seek to expand trade with them.”

“The global economy in 2025 may feel like a puzzle with shifting pieces, as familiar patterns of trade and policy will continue to change. There are three challenges I foresee.

“First, faster fragmentation of the global economy due to the tariffs promised by Donald Trump seems to be certain. These tariffs will disrupt and reshape trade between the US and its allies and strategic competitors alike, driving further division in the global economy.

“Second, an increased enthusiasm for industrial policies that discriminate against foreign interests will experience a global resurgence. This trend will further fragment the global economy and may erect more economic walls.

“Third, political shifts in the US and Europe will add another layer of uncertainty, especially around trade policies and commitments to green targets. This uncertainty will make firms pause and put on hold their investment at home and abroad.

“While 2025 may bring greater division and uncertainty, it also presents opportunities for those ready to adapt and find their place in the evolving global economy.”

“The 2025 outlook for the global economy is particularly complex. The US is projected to decelerate gradually from its above-trend growth, but to stay supported by solid domestic demand. Europe’s growth is likely to remain below trend, weighed down by structural and political challenges. China is still struggling to boost consumption meaningfully, but its policy stimulus should prevent a more abrupt slowdown. Overall, this implies global growth will slow somewhat from 2024 but still achieve a decent rate of about 3%.

“However, such a scenario is at risk from highly uncertain future US policies and their global impact. Sharp tariff increases could not only disrupt global trade flows and stoke geopolitical tensions. In combination with reduced migrant labour supply and continued large fiscal deficits, they could also reignite inflation pressures in the US. This could force the Fed to stop cutting rates, adding to dollar strength and slowing the global easing cycle – at a time when debt burdens are high. Thus far, markets have focused on the positives of anticipated deregulation and gains from AI. These are indeed reasons to be optimistic, but the path for 2025 could be rocky.”

“The outlook for the global economy in 2025 hinges, to a large extent, on what happens in the G2, namely the US and China. The incoming US administration has indicated that it will be disruptive, be it on trade, immigration, regulation, and the very way in which it handles international relations. We envisage a net neutral to inflationary impact of the government´s initiatives on inflation. This will limit the scope for easing by the Fed. Still, economic growth should remain resilient, in the 2-3% range.

“The impact of US economic policy on China depends on the severity of the increase in tariffs. Chinese authorities are likely to calibrate their policy response in order to make sure growth remains in the 5% neighbourhood. Weakness in the real state sector and in local finances, plus fragile consumer confidence, pose downside risks. All in all, we see global GDP growth slightly above 3%, roughly stable from 2024. Geopolitics remain the wildcard, with the potential to help or hinder growth, depending on the situations and possible end-games in Ukraine and the Middle East. The environment for emerging markets, including Brazil and its neighbours, will remain manageable, but challenging. Prudent macro policies will be rewarded.”

“Prior to the US election, the outlook for the global economy was one of normalization, with moderating inflation, rates and yields, trend-like global growth, and narrowing divergences across regions. This included slowing US growth and modestly improving dynamics in Europe and China, with emerging economies benefitting from an accelerated rate cutting cycle. The new political construct in Washington is instead likely to amplify divergences.

“US growth is set to be bolstered as fiscal measures are expanded, while elevated uncertainty around tariffs and the future world trade environment will weigh on sentiment and activity elsewhere. Stickier US inflation and reduced scope for Fed rate cuts, in combination with the stronger dollar environment, will weigh on the global rate cutting cycle, with negative implications for emerging markets in particular. That noted, further, more modest declines in inflation and policy rates are still anticipated.

“While President Trump’s intent appears clear, and [the US] Congress is likely to be supportive, the response of financial markets may ultimately provide the checks and constraints on an ambitious yet contradictory political agenda. From both an economic and financial market perspective, the global outlook is best characterized as being volatile and in a state of flux.”

“Advanced economies have shown resilience despite high interest rates, though growth remains below historical averages, while emerging market economies present a mixed picture. In Latin America and the Caribbean, growth is projected to stay close to 2% in 2024 before rebounding to 2.5% in 2025, with varying performances across countries reflecting domestic policy stances and external conditions.

“High interest rates in major economies remain a crucial factor, affecting borrowing costs, investment decisions, and debt servicing capacity globally. While CPI inflation has generally trended downward, core inflation remains above target in many countries, suggesting monetary policy may stay restrictive.

“Structural challenges persist, including demographic shifts in major economies, the transition to green energy, and adaptation to AI technologies. These create both opportunities and adjustment costs. China's economic rebalancing continues to significantly impact global trade and commodity markets, though with uncertainty around the pace and nature of this transition.

“Geopolitical tensions present ongoing risks, particularly around trade routes and supply chains. The ongoing conflicts in Ukraine and the Middle East add uncertainty to energy markets and trade flows. These factors suggest a period of below-trend growth with significant regional variation, though with potential upside if inflation continues to moderate and geopolitical tensions ease.”

“The outlook for the global economy is cautiously optimistic, even though risks are large. Global GDP is projected to grow at a steady rate of 3.3% in both 2025 and 2026, supported by stabilizing inflation, which is now close to central bank targets, even though services price inflation remains somewhat sticky. Unemployment levels are also low in many regions. Additionally, global trade has been recovering.

“Still, the risks to the outlook are real and significant. Escalating trade tensions and geopolitical conflicts threaten to disrupt supply chains, drive up energy and goods’ prices, and weaken growth prospects. High public debt poses a critical challenge, with mounting fiscal pressures – driven by ageing, defense expenditures, and the transitions to digital and green economies – straining government budgets and jeopardizing the ability to respond to future crises. Moreover, some emerging market- and developing economies are already in or at high risk of debt distress.

“Policy responses will be pivotal in shaping the future. Monetary policy must balance the easing made possible by declining inflation with ensuring inflation is durably contained. Simultaneously, governments must craft credible strategies to rein in public finances without undermining growth. And, structural reforms will be essential to revitalize medium-term economic prospects.”

“2025 is all about how policymakers deliver change in a highly polarized society. President Trump’s playbook, Europe’s plan to avoid a ‘slow agony’ (to quote Mario Draghi), and of course China’s super stimulus are among the pivotal policy decisions that will shape 2025 and beyond globally, from growth, to inflation, to markets momentum.

“The transatlantic divergence initially coming from America’s triple edge (energy, tech, and fiscal) will be exacerbated by President Trump’s policies, forcing the Federal Reserve to halt its loosening cycle halfway on the back of reflation. US exceptionalism will continue with a twist: it will be much more costly in terms of capital, attractiveness, and risks to the rest of the world.”