Economists and financial analysts are sounding the alarm about the growing risks to global economic stability as the year 2025 has just started. A combination of relentless inflationary pressure, interest rates that are sky-high, and geopolitical instability is set to make the next year quite uneventful-all these factors apart from aftershocks created by the COVID-19 pandemic and supply chain disruptions linger on.
A critical concern is inflation, which has been high and protracted in most regions across the world. The hike in interest rates by most central banks, spearheaded by the US Federal Reserve and the European Central Bank, to reverse the said trend was almost unavoidable.
However, this approach would already have set the alarm over an economic slowdown and eventual recession. Higher borrowing costs are likely to affect businesses and diminish consumers’ spending and investment.
The second important factor is the rising geopolitical tensions, especially regarding the war in Ukraine and its implications for the global economy.
It has disrupted the energy supply but accelerated the rate of inflation, especially in Europe. More so, the continuing tension between the U.S. and China over trade, technology, and military control might lead to economic fragmentation with countries retreating into regional blocs that could even strangle global trade.
Additionally, climate change increasingly threatens the economies of vulnerable regions. The effects of extreme weather events, sea-level rise, and changes in agriculture and water supplies could lead to a long-term loss of global food security and economic stability.
Moreover, indebtedness is another important source of concern, above all for developing countries that had a big boost in borrowings in order to overcome the consequences of the pandemic, and other related or independent shocks. Most of those have unsustainable debt burdens; at any moment, with higher worldwide recession risks, defaults are going to deepen in conditions worse than the pandemic started with.
Because of these risks, “policymakers and central banks would need to act decisively.” But they will most probably be relatively less effective than their answers would lead us to hope for. Furthermore, this increases the risks of contagion-econometrics showing how specific economic shocks could reverberate around the world market. While some wish for greater global cooperation and strong economic policies to cushion such risks, others fear the world is slipping towards a more fragmented and volatile future.
As we move to 2025, all eyes shall be on policymakers, businesses, and international organizations as they try to chart a course through these rough waters and keep the world economy from heading toward calamity.
