The global economy has started 2025 on a firm footing, on the back of easing inflation, improving financial conditions and a resilient performance by the US economy. Nevertheless, the outlook is fragile, with key risks stemming from heightened policy uncertainty and geopolitical tensions, compelling businesses to adapt their operations and supply chains for potential policy and economic shifts.
In Euromonitor International’s Q1 2025 baseline forecast, global real GDP growth is predicted to remain stable at 3.2% in 2025 and 2026, staying below the pre-pandemic levels. Global inflation is forecast to moderate further to 4.1% in 2025 and 3.5% in 2026, significantly down from 6.4% in 2024.
Outlook in advanced economies dampened by policy uncertainties
Growth will vary across major developed economies, with the outlook clouded by uncertainty surrounding anticipated policy changes from both the US and Europe.
Advanced economies are projected to maintain steady real GDP growth at 1.7% in 2025, largely driven by the US
Source: Euromonitor International
The US economy is projected to grow by 2.1% in 2025, slowing from the previous year, but remaining the fastest growing G7 economy. The positive outlook is supported by President Trump’s proposed tax cuts and deregulation, which are expected to bolster business and consumer confidence. However, potential tariffs, tighter immigration policies leading to labour supply constraints and weaker domestic demand, as well as the lagging effects of high interest rates pose downside risks, limiting growth momentum.
The UK economy is set to gain momentum in 2025, supported by higher public spending, looser monetary policy and rising real wages, which should support consumer demand. Meanwhile, Japan’s economy is predicted to strengthen in 2025, as broad-based wage rises support private consumption; however, lingering price pressures remain a key headwind.
Solid growth expected across developing and emerging markets, but the picture is mixed
Developing and emerging economies continue to have a generally positive but mixed outlook, with real GDP growth expected to average 4.3% in 2025.
Emerging Asian economies, like India, Vietnam and the Philippines, remain at the forefront of this expansion, thanks to resilient private consumption, solid public spending and rising investment
Source: Euromonitor International
Meanwhile, momentum in China, Brazil and Mexico is predicted to soften.
China’s real GDP growth is projected to slow to 4.5% in 2025, weighed down by mounting trade tensions, the lingering property crisis, and weak domestic demand. However, stimulus measures, including rate cuts, fiscal aid and debt relief, aim to offset these headwinds. Escalating trade tensions with the US is one of the major risks for China’s outlook.
Brazil’s economic growth is predicted to decelerate, due to a weaker outlook for exports, and tight monetary policy affecting private spending and investment. Mexico’s growth is also set to slow amid weaker investment and external demand, and fiscal tightening, with uncertainty over potential US tariffs posing a major threat to the outlook.
Inflation eases further in 2025, but trade and policy risks could limit the progress
Global inflation is predicted to decline further in 2025, to 4.1%, as demand softens due to the lagging effects of tight monetary policy, and supply conditions remain favourable. An anticipated cooling of the labour market is also expected to provide some relief to service price pressures.
In many major advanced economies, like the US and the Eurozone, inflation has shown signs of stabilising, moving closer to the 2% target, though services inflation remains sticky, due to rising wages. In contrast, developing countries like Brazil, Mexico and Turkey continue to face inflationary pressures from weak local currencies and strong domestic demand. Key risks to the baseline inflation forecasts include potential US trade protectionism, which could lead to higher tariffs and disrupt global supply chains, raising costs for businesses and consumers.
While the global economy is predicted to expand steadily, the pace of growth remains muted, and various downside risks can threaten the outlook. After the super electoral year in 2024, political and policy changes are reshaping the global economic landscape and introducing uncertainties.
The risk of a global trade war is looming, as trade protectionist policies are likely to intensify under the administration of US President Trump. Euromonitor International’s Total Trump Agenda scenario assumes President Trump would implement all his campaign promises regarding tax cuts, immigration control and tariffs (60% on China, 25% on Mexico and Canada, and 10% on the rest of the world). If these policies materialise, growth in the global economy could be slower by 0.5 percentage points in 2025 and 1.3 percentage points in 2026 relative to the baseline.
As policy changes in the US can affect everything from consumer spending to supply chain resilience, businesses will need to sharpen their market foresights and adopt proactive risk mitigation strategies.
Learn more about the global economic outlook in Q1 2025 and the impacts of different macroeconomic scenarios in our full report, Global Economic Forecasts: Q1 2025.
