The United Nations’ latest economic report has projected that global economic growth will remain at 2.8% in 2025, consistent with the 2024 figure. This stagnant growth rate reflects a combination of structural challenges, subdued investment, and slowing momentum in the world’s largest economies, the United States and China.

Global Economic Overview

The World Economic Situation and Prospects (WESP) report, released by the U.N. Department of Economic and Social Affairs, underscores a persistent divergence in economic performance across regions. While some developing economies continue to show resilience and robust growth, advanced economies face headwinds that are dampening their growth prospects.

“Despite continued expansion, the global economy is projected to grow at a slower pace than the pre-pandemic average of 3.2% observed during the 2010–2019 period,” the report noted. This subdued outlook reflects ongoing structural challenges such as:

• Weak investment: A hesitancy in long-term capital allocation due to economic uncertainties.
• Slow productivity growth: The failure of technological advances to translate into substantial productivity gains in many regions.
• High debt levels: Mounting public and private sector debts constraining fiscal flexibility.
• Demographic pressures: Aging populations in key economies, notably Japan, Europe, and parts of East Asia, are shrinking workforces and increasing dependency ratios.

Economic Performance by Region

United States

The U.S. economy, which grew by 2.8% in 2024, is projected to moderate to 1.9% in 2025. This slowdown reflects a cooling labor market and a decline in consumer spending, traditionally the backbone of the U.S. economy. Despite this, robust corporate profits and a potential rebound in manufacturing could provide some stability.

China

China, the second-largest economy, is projected to grow by 4.8% in 2025, down from an estimated 4.9% in 2024. While public sector investments and strong export performance have been driving growth, challenges such as subdued domestic consumption and lingering weaknesses in the property sector pose significant risks. China’s recovery has been uneven, with rural areas lagging behind urban centers in economic resurgence.

Europe

The European Union is expected to recover modestly, with growth projected to increase from 0.9% in 2024 to 1.3% in 2025. This recovery is attributed to easing inflationary pressures and resilient labor markets. However, lingering uncertainties about energy security, geopolitical tensions, and the aftermath of the Ukraine conflict continue to cast a shadow on Europe’s economic outlook.

South Asia

South Asia is forecasted to remain the world’s fastest-growing region, with regional GDP growth projected at 5.7% in 2025 and 6% in 2026. India, the region’s largest economy, is expected to lead this growth, with projections of 6.6% in 2025 and 6.8% in 2026. India’s performance is driven by robust domestic consumption, increased foreign investment, and a burgeoning tech sector. Other countries in the region, including Bhutan, Nepal, Pakistan, and Sri Lanka, are also anticipated to see economic recoveries, albeit at varied paces.

Sub-Saharan Africa and Latin America

Sub-Saharan Africa and Latin America continue to face mixed growth prospects. While resource-rich nations such as Nigeria and Brazil benefit from recovering commodity prices, weaker governance and socio-economic challenges weigh on overall performance. The UN projects modest growth for these regions as they strive to diversify their economies.

Inflation and Monetary Policy

One bright spot in the report is the anticipated easing of inflationary pressures. Global inflation is projected to decline from 4% in 2024 to 3.4% in 2025. This trend is expected to provide relief to households and businesses, particularly in developing economies where inflation has significantly eroded purchasing power.

In response to easing inflation, major central banks, including the Federal Reserve, the European Central Bank, and others, are likely to reduce interest rates in 2025. However, the report cautions that monetary easing alone will not be sufficient to reinvigorate global growth. Policymakers must complement monetary measures with structural reforms and targeted fiscal policies.

Call for Multilateral Action

The WESP report emphasizes the urgent need for bold multilateral action to tackle interconnected global crises:

• Debt Crisis: Many low- and middle-income countries face unsustainable debt levels, limiting their ability to invest in critical sectors such as health, education, and infrastructure. The UN calls for coordinated efforts to restructure and forgive debts to enable these countries to recover economically.
• Climate Change: Climate-related challenges, including extreme weather events and resource scarcity, continue to pose significant risks to global economic stability. The report urges nations to accelerate their transition to renewable energy and adopt sustainable practices.
• Inequality: Rising income inequality, both within and between countries, threatens social cohesion and long-term economic growth. Policymakers must prioritize inclusive growth by investing in education, healthcare, and social safety nets.

“Monetary easing alone will not be sufficient to reinvigorate global growth or address widening disparities,” the report warns. “A coordinated global response is essential to tackle these challenges effectively.”

Technological Innovation and Digital Transformation

The report highlights the transformative potential of technology and digital innovation in driving future economic growth. Emerging technologies, including artificial intelligence, blockchain, and renewable energy solutions, present opportunities for developing nations to leapfrog traditional development stages.

Countries like India, Indonesia, and Vietnam are leading examples of how investments in technology and digital infrastructure can fuel rapid economic growth. However, the digital divide remains a significant barrier, with many low-income nations lacking the infrastructure and skills needed to harness these opportunities.

Long-Term Outlook and Risks

The global economic outlook for 2025 and beyond remains fraught with uncertainties. Key risks include:

• Geopolitical Tensions: Ongoing conflicts and rising protectionism could disrupt global trade and investment.
• Energy Transition Challenges: The shift away from fossil fuels, while necessary, poses short-term economic disruptions for energy-dependent economies.
• Demographic Shifts: Aging populations in advanced economies and rapid urbanization in developing regions will require innovative policy solutions to maintain growth.

Despite these challenges, the report remains cautiously optimistic about the potential for recovery and long-term growth, provided nations adopt a collaborative and forward-looking approach.

Conclusion

The UN’s prediction of 2.8% global economic growth in 2025 underscores the complexities of the post-pandemic recovery. While some regions, such as South Asia, continue to outperform, advanced economies face structural challenges that require comprehensive solutions.

Policymakers worldwide must navigate a delicate balance between addressing immediate economic pressures and laying the groundwork for sustainable and inclusive growth. The road ahead is uncertain, but with bold action and international cooperation, the global economy can overcome its current hurdles and chart a path toward resilience and prosperity.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

14^th January, 2024