The global economy demonstrated resilience and vitality and achieved steady growth in 2024 despite ongoing geopolitical tensions and internal political turmoil in some major countries. However, significant disparities in economic performance emerged across different regions and industries. These differences have led to diverging policy goals and strategies by governments, introducing an element of uncertainty to economic development in 2025.
General global growth
From a global perspective, the overall macroeconomic situation improved over the past year. First, global GDP growth exceeded expectations. The International Monetary Fund projects that growth will end up at 3.2 percent for 2024, slightly lower than the previous year. Despite interest rate hikes by the U.S. and European central banks, the world economy maintained relatively stable growth, thanks to strong enthusiasm for consumption and investment, and thus generally achieved a soft landing.
Second, global trade continued its recovery. According to the Organisation for Economic Co-operation and Development, trade growth could reach 3.5 percent for the whole year, with the value of trade reaching a record high of $33 trillion.
Third, inflationary pressure continued to ease and gradually approached the target levels set by the central banks. Last year, the overall inflation rate of the G20 fell to 5.4 percent, marking a substantial improvement compared with the COVID-19 period. This decline contributed to wage growth and a notable increase in people’s real incomes. The disposable household income in major developed economies rose by 3 to 4 percent in 2024.
Fourth, the employment environment changed for the better. The global labor market achieved rebalancing, with many indicators of a tight job market returning to pre-pandemic levels. Unemployment rates in most developed Western countries are now are near historical lows.
Despite overall economic growth, the performance across industrial sectors showed variation. Technological innovation represented by artificial intelligence, integrated circuits, quantum technology and related fields continued to make breakthroughs, and both technology R&D and manufacturing saw a boom in investment and development, emerging as main sources of growth. In contrast, traditional manufacturing sectors such as energy, metals and automobiles, experienced a decline in profits, and concerns over production capacity reemerged.
The growth of international trade was similarly uneven. The service sector grew by 7 percent for the year, driven by strong performance in business services, such as finance and law, as well as by mass services such as tourism and culture, which emerged as leading growth drivers. However, the growth rate of trade in goods was modest at just 2 percent, and the value of trade in some traditional manufacturing sectors even declined.
Economic divergence
First, emerging markets and developing economies outpaced developed countries in GDP growth, with a projected rate of 4.2 percent in 2024. The Asia-Pacific region boasted the strongest momentum, followed by Africa, while Latin America and the Middle East lagged behind. Developed countries grew by about 1.8 percent for the whole year. Of those, the United States was the best performer in the Western world, with an annual growth rate of nearly 2.8 percent.
Europe finally moved out of stagnation and recorded growth in 2024, but leading countries, such as France, Germany, Britain and Italy, now face many problems and weak economic expansion. The Nordic countries also showed lackluster performance, with growth primarily driven by marginal medium-sized economies such as Spain, Greece and Ireland. As a result, Europe’s overall growth remained subdued, with an annual rate of approximately 0.8 percent across the EU and 0.9 percent within the eurozone.
Second, developed and developing countries have taken different paths in addressing inflationary pressures. Emerging economies met their anti-inflation targets earlier, thanks to a general decline in energy and commodity prices, thus allowing them to shift their focus toward stimulating economic growth. However, developed countries such as the United States have seen a relatively slow decline in inflation. Rising wages, driven by low unemployment rates, have contributed to higher service prices. Their economic decision-makers are still seeking a balance between curbing inflation and protecting employment and have adopted a cautious approach to the use of monetary policy tools.
Third, the investment boom and early gains in technological innovation are concentrated in R&D powerhouses — the United States and China. Developed countries, such as Japan and those in Europe are seeking technological breakthroughs while consolidating their competitive edge in traditional industries. However, most developing economies have not yet joined this trend. This has led to a widening global gap in the adoption of information technology and industrial transformation.
Recent trends and policy risks
In light of the stable economic foundation established over the past year, leading global institutions predict that the world economy will continue to experience sound growth in 2025. Developed countries are expected to continue their return to pre-COVID-19 growth levels, with OECD member countries achieving a moderate growth of 1.9 percent on average. At the same time, the growth rate of developing economies may experience a slight decline. Globally, the annual GDP growth rate is expected to be the same as in 2024.
Global inflation is expected to continue its downward trend in 2025, with the inflation rate for G20 countries projected to fall to 3.5 percent. Canada and eurozone countries may be among the first to reach the target level of 2 percent. This decline can provide policy space for central banks to further reduce interest rates, as part of their efforts to normalize rates and boost economic expansion.
Bilateral trade relations between major global trading partners may experience turbulence and adjustments. However, the recovery of the European economy and the increase in trade between emerging economies can provide extra momentum, helping to sustain global trade growth at around 3.6 percent.
This year, economic fluctuations will mainly be triggered policy shifts and political changes in various countries. The most prominent is the impact of the return of U.S. President Donald Trump. Optimists argue that his return could result a significant economic boost. His promise of large-scale tax cuts, deregulation and a more pro-business policy may release investors’ animal spirit, bringing investment surges to industries such as traditional energy and cryptocurrency, which Trump supports, and ultimately boosting the growth of the U.S. economy and the wider world economy.
On the other hand, pessimists emphasize that Trump’s re-election brings uncertainty. The future of policies rolled out by the Biden administration in advanced manufacturing sectors, such as chips and new-energy vehicles, seems fuzzy. Policies supporting the green transformation may be replaced by a stance that denies climate change and prioritizes the production of traditional energy. Additionally, various supply chain and technology alliances established by the United States and its Western allies may run idle or even break down.
Undoubtedly, the most significant source of uncertainty arises from the tariff and trade war that Trump has pledged to initiate. During his campaign, he proposed imposing tariffs ranging from 10 to 20 percent on all U.S. trading partners and 30 to 60 percent on Chinese imports. Moreover, he said that the tariffs would not merely serve as a negotiating tool but would be a key policy objective in themselves.
If a tariff war breaks out this year, it may cause (a) another round of contraction of global production and value chains; (b) turbulence in global trade relations, rising prices of both imported and exported goods and a reemergence of inflation expectations; (c) instability in the foreign exchange and stock markets in affected countries; and (d) the prevalence of protectionist policies, which will further undermine the achievements of economic globalization. Depending on the severity of Trump’s tariff war, global economic growth could decline by anywhere from 0.4 to 1.4 percent.
In addition, excessively high levels of global public debt, the continued deterioration of fiscal health in some countries and the possible escalation of geopolitical security crises pose risks to economic development in 2025 and contribute to a more complex and uncertain global economic outlook.
