Global economic prospects for 2025 are facing significant headwinds, according to a new report from the Peterson Institute for International Economics (PIIE). The report, titled "Global Economic Prospects: Fall 2025," paints a concerning picture of slowing growth, persistent inflation, and increased geopolitical risks impacting the world economy.
The primary drivers of this gloomy outlook include tighter monetary policies implemented by central banks worldwide to combat inflation, which are dampening economic activity. Supply chain disruptions, exacerbated by ongoing geopolitical tensions, continue to plague various industries, leading to higher production costs and reduced output. The war in Ukraine remains a significant drag on global growth, particularly in Europe, with rising energy prices and trade disruptions further fueling inflationary pressures.
Economists at PIIE highlight the uneven recovery across different regions. While the United States has shown resilience, growth is expected to moderate in 2025. Europe faces a higher risk of recession due to its reliance on Russian energy and its proximity to the conflict in Ukraine. Emerging markets are grappling with high debt levels and capital outflows, making them vulnerable to external shocks.
"The global economy is navigating a challenging landscape," said Maurice Obstfeld, a senior fellow at PIIE and one of the report's authors. "Policymakers need to strike a delicate balance between containing inflation and supporting economic growth. Fiscal policy should be targeted and temporary to avoid adding fuel to the inflationary fire."
The report forecasts a moderate rebound in global growth in the second half of 2025, assuming that inflationary pressures gradually ease and geopolitical tensions de-escalate. However, the risks to the outlook remain tilted to the downside. A sharper-than-expected slowdown in China, a renewed surge in energy prices, or an escalation of geopolitical conflicts could all derail the recovery. The PIIE urges international cooperation to address these challenges and promote a more stable and sustainable global economy.
The primary drivers of this gloomy outlook include tighter monetary policies implemented by central banks worldwide to combat inflation, which are dampening economic activity. Supply chain disruptions, exacerbated by ongoing geopolitical tensions, continue to plague various industries, leading to higher production costs and reduced output. The war in Ukraine remains a significant drag on global growth, particularly in Europe, with rising energy prices and trade disruptions further fueling inflationary pressures.
Economists at PIIE highlight the uneven recovery across different regions. While the United States has shown resilience, growth is expected to moderate in 2025. Europe faces a higher risk of recession due to its reliance on Russian energy and its proximity to the conflict in Ukraine. Emerging markets are grappling with high debt levels and capital outflows, making them vulnerable to external shocks.
"The global economy is navigating a challenging landscape," said Maurice Obstfeld, a senior fellow at PIIE and one of the report's authors. "Policymakers need to strike a delicate balance between containing inflation and supporting economic growth. Fiscal policy should be targeted and temporary to avoid adding fuel to the inflationary fire."
The report forecasts a moderate rebound in global growth in the second half of 2025, assuming that inflationary pressures gradually ease and geopolitical tensions de-escalate. However, the risks to the outlook remain tilted to the downside. A sharper-than-expected slowdown in China, a renewed surge in energy prices, or an escalation of geopolitical conflicts could all derail the recovery. The PIIE urges international cooperation to address these challenges and promote a more stable and sustainable global economy.
Source: Economy | Original article