The global economy is on track for a soft landing in 2025, a scenario characterized by stable growth and managed inflation risks, as economies adapt to shifting geopolitical and economic dynamics.

While GDP forecasts have been upgraded through 2024 due to disinflation and increased labor supply, the overall outlook for 2025 remains steady but unspectacular.

The global economy is expected to achieve modest growth, driven by contributions from Emerging Asia, the U.S. and, to a lesser extent, the Eurozone.

China and emerging Asia. Despite some struggles, China and its neighboring economies remain the primary drivers of global growth. China's growth, though above the global average, reflects its middle-income country status in GDP per capita terms. Emerging Asia’s younger population and rising labor force bolster this region’s role as the "cart horse" of the global economy.

United States. The soft-landing narrative is particularly relevant to the U.S., where disinflation, rising nominal wages, and strong consumer spending, supported by a wealth effect from a stock market boom, contribute to steady growth.

Eurozone. Although recovery is underway, Europe continues to lag the global average, with growth uneven across member states. Spain and other southern economies benefit from a services boom, while Germany faces structural challenges in its industrial base.

There are several factors driving growth, including:

• Labor supply increases coming from emerging economies, including Latin America;
• Technological advances and the AI revolution have supported a boost to productivity and economic output, especially in the U.S.;
• Increased consumer spending due to pandemic-era savings, new defense allocations, climate initiatives, and industrial subsidies across major economies, and
• Monetary easing, which provides support for investment and conception of durable goods, especially in the Eurozone, even though U.S. interest rates are likely to remain higher due to intensified trade conflicts and fiscal policies.

In addition, global trade in 2025 is projected to grow by 3.3%, a significant improvement from an estimated 1.8% in 2024. Especially in 2025, we may see a positive impact of the new administration on trade, as companies may accelerate export orders in anticipation of the tariffs, causing trade to depress in 2026.

However, risks remain, driven by tariffs, geopolitical fragmentation and shifts in trade patterns. The U.S.-China trade war will continue to be an issue, and the intensification of tariffs will lead to targeted restrictions on steel, aluminum and electronics. While China’s exports to the U.S. are expected to decline, its trade with Europe and emerging Asia will increase, reshaping global supply chains. One of the most affected sectors in China is the electronics sector, as its output will shrink and the U.S. output will increase, causing trade to be more limited. 

This may create an advantage for other countries, such as Vietnam and India, who will benefit as manufacturing shifts away from China. Conversely, domestic production increases in many countries will result in trade inefficiencies and a growth drag.

Geopolitical fragmentation may also have an impact. The U.S.-China trade war and global trade restrictions are key sources of uncertainty. While a 60% tariff on Chinese imports is unlikely, a baseline scenario anticipates tariffs rising to 30% on specific sectors by late 2025. The resulting uncertainty should result in caution among international businesses.

As far as emerging markets’ predictions are concerned, they’ll face mixed prospects. While higher U.S. interest rates and a strong dollar pose challenges, youthful demographics and increasing labor supply remain growth drivers.

In Latin America, migration to advanced economies supports remittances and domestic spending. However, funding costs remain elevated. 

For China, structural reforms and changes to their economic model are necessary to shift from an investment-driven economy to one focused on consumption, which will help drive growth. Aging demographics and trade war pressures compound challenges.

In Europe, Portugal, Ireland, Greece and especially Spain, which were formerly problem economies, are doing remarkably well, compared to industrialized northern countries such as Germany and France. This is due to the boom in services, including tourism, and funds flowing in from the European Commission. Germany’s economic forecast is quite poor, with the country in need of an overhaul to become competitive again. 

As businesses navigate uncertainty, 2025 will demand agility to work through geopolitical fragmentation, fluctuating tariffs and regional disparities. Trade shifts, emerging market opportunities and technological advances will shape the year’s economic landscape. A soft landing may mitigate broader risks, but international business leaders must remain vigilant amid the evolving global economic environment.

John Lorié is chief economist with Atradius.