According to the EIU’s latest Economic Outlook, the global economy is projected to grow despite significant challenges, with GDP growing 2.5%. The current global geopolitical environment is characterised by increasing competition and conflict. The confrontation between Israel and Iran underscores the ongoing risk of a regional war in the Middle East, particularly as the conflict in Gaza persists. Meanwhile, Russia’s invasion of Ukraine, now in its third year, shows no signs of resolution. Additionally, flashpoints in Asia, including issues related to the South China Sea and Taiwan, continue to pose a significant threat to the fragile stability of US-China relations. Overall, the diffusion of global power and uncertainty about the direction of US foreign policy contributes to an increase in geopolitical risk.

While the worst of the recent cost-of-living crisis may be behind us, inflation is not expected to fall back to the low levels seen before the pandemic. A tightening labour market, driven by demographic shifts and stricter immigration policies, will maintain strong demand and lead to higher wages. At the same time, changes in supply chains and the growing unpredictability of climate conditions are likely to continue pushing prices upward.

The green transition and technological changes are expected to be two significant trends influencing global economic prospects not only in 2025 but also over the next five years. Unfortunately, these trends may hinder development prospects for poorer countries. Developing economies will be disproportionately affected by climate change and face challenges in securing financing to address its impacts. While sceptical about the extent of productivity gains from artificial intelligence (AI), any material improvements will likely benefit mainly developed economies. This situation could challenge countries striving to increase manufacturing and services value chains. However,  some emerging markets will perform well, particularly those relatively insulated from geopolitical tensions and rising trade barriers. India is projected to be the fastest-growing major economy from 2024 to 2028, and Mexico is expected to gain from nearshoring trends.