Growth prospects from a volatile world - Part 2: Factors shaping the new era

Key elections taking place in 2024, with the US presidential election at the centre, are reshaping the global economic landscape.

Analysts say the change will open up new opportunities, but also pose many challenges. 2025 is forecast to continue to be a year of many fluctuations for the global economy. The “residual” consequences of the COVID-19 pandemic, along with the Russia-Ukraine conflict and tensions in the Middle East, will create a complex and unpredictable economic picture.

Challenges Ahead

Rising economic fragmentation and geopolitical tensions pose significant challenges to global growth and cooperation. Increasingly, countries are imposing trade barriers, restricting investment and pursuing protectionist policies that could disrupt supply chains, reduce global trade and stifle growth. CaixaBank Research has warned of the risks of “deglobalization” and stressed the importance of strengthening the multilateral trading system.

The outcome of the 2024 US presidential election will play a key role in shaping this trend. A second term for Donald Trump in the White House could lead to major changes in trade, tax, and regulatory policies, which could impact global investment flows and business activity. Such abrupt changes in US trade policy could act as a “catalyst” that further divides economies into geopolitical blocs, leading to a more fragmented global economy.

According to German Economy Minister Robert Habeck, under the administration of President-elect Donald Trump, current trade agreements and economic rules are becoming fragile and unpredictable. Germany and the European Union (EU) countries are likely to be strongly affected by this new tax policy, as the US market is one of the important destinations for European exports, especially industrial products and automobiles.

Export- and resource-dependent countries such as Hungary, the Netherlands and Belgium are likely to be hit harder by tariffs and trade barriers, while France and Italy are more resilient due to their relatively large domestic markets. In Asia, trade-dependent economies such as Singapore and Hong Kong are more vulnerable to a more fragmented global economy.

Slow but steady growth

The general consensus in forecasts from international financial institutions such as the International Monetary Fund (IMF), the World Bank (WB) and the Organization for Economic Cooperation and Development (OECD) is that global economic growth will slow in 2025. The IMF forecasts global GDP growth of about 3.2% in 2025. Meanwhile, the WB forecasts 3.3% growth for 2025, compared to the corresponding level of 3.5% before the COVID-19 pandemic. Investment bank Goldman Sachs, although more optimistic, also forecasts only "moderate" growth next year.

The latest report from Barclays bank highlights that the world is unlikely to see a significant improvement in Gross Domestic Product (GDP) growth, leading to expectations of lower investment returns in the near future.

Barclays economists predict global GDP growth will slow to 3% in 2025, from 3.2% in 2024. They also stress the importance of strategic planning and a focus on environmental, social and governance (ESG) factors.

The downgrade of growth forecasts by financial institutions partly reflects the challenges facing the global economy, including persistent inflation, tight monetary policy, escalating geopolitical tensions, and potential risks from the energy and supply chain crises.

The US economy, which has been the main engine of global growth, is expected to slow down in 2025. The new US administration, led by Donald Trump, could bring changes in fiscal, trade and regulatory policies, creating both opportunities and challenges for businesses and investors. Independent US investment management company Invesco stressed the importance of closely monitoring the new administration's policies, especially regarding government spending and trade.

China, the world’s second-largest economy, is also facing internal challenges, including a slowing real estate market, high debt levels and geopolitical tensions. China’s growth is also forecast to slow in 2025, affecting global demand and the growth of economies that rely on exports to the country.

Meanwhile, the Eurozone continues to struggle with high inflation, an energy crisis and political instability. The ongoing conflict between Russia and Ukraine is disrupting energy supply chains and pushing up prices, negatively impacting economic growth in the region. CaixaBank Research stressed the need to diversify energy sources and strengthen economic resilience to cope with external shocks.

Can financial and commodity markets maintain their upward momentum?

2024 is shaping up to be a stellar year for the stock market. With the prospect of further declines in interest rates, it’s easy to assume that 2025 could be another banner year for stock investors.

In fact, 2025 comes with risks and the potential for volatility. Global equity markets could experience sharp corrections, especially amid inflation, slowing economic growth and geopolitical uncertainty. Invesco notes the potential for increased volatility in equity markets and recommends that investors diversify their portfolios. Big tech companies will remain the focus of the market, but investors will be more cautious.

The gold market may continue to attract investors amid uncertainty. According to Kitco, the recovery in gold after a significant sell-off in mid-November 2024 shows the market's belief that the precious metal's rally is not over yet. Goldman Sachs recently reiterated its forecast for gold prices to hit $3,000 an ounce by 2025.

The oil market is expected to continue to depend on demand from China and the production policy of the Organization of the Petroleum Exporting Countries and its partners led by Russia, known as OPEC+. Oil prices are expected to fluctuate around $80-100/barrel, depending on the geopolitical situation, especially developments in the Russia-Ukraine conflict.

In its October 2024 World Commodity Market Outlook, the World Bank forecast that global commodity prices are expected to rise by 2.7% in 2024 and fall to a five-year low in 2025, continuing the downward trend in 2026, mainly due to the oil glut. Despite the decline in oil prices, other commodities such as natural gas, metals and agricultural raw materials will remain stable, somewhat limiting the overall decline, the report said. The good news is that the volume of world merchandise trade could increase by 3% in 2025. However, geopolitical tensions and rising economic policy uncertainty continue to pose significant downside risks to the forecast.

Adapt and innovate to shape the future

Amid challenges and uncertainties, technology and digital transformation remain potential growth drivers for the global economy. Developments in artificial intelligence (AI), biotechnology, renewable energy and other technology sectors can create new growth drivers, improve labor productivity and solve pressing global problems.

After the significant changes of 2024, 2025 is considered a pivotal year, putting the world economy on the threshold of a new era, with both opportunities and challenges intertwined. To overcome difficulties and take advantage of opportunities, countries, businesses and individuals need to be flexible, adaptive and proactive in innovation. International cooperation, building trust and promoting free trade also play an important role in shaping a stable and prosperous “new normal”.

Lesson 3: What is the scenario for the world economy after the US election?

According to VNA

Source: https://doanhnghiepvn.vn/kinh-te/trien-vong-tang-truong-tu-mot-the-gioi-bien-dong-bai-2-nhung-yeu-to-dinh-hinh-ky-nguyen-moi/20241205091031552