The global economy has proven to be surprisingly resilient. This comes despite an expected return to just a moderate slowdown in 2025. Making the biggest difference will be geopolitical tensions and widespread policy changes from the United States. Recent moves to stop foreign aid and withdraw from international financial institutions have sent devastating signals to developing economies. The global economy on track for robust expansion in 2026.
According to their most recent World Economic Outlook report, global growth is on track to reach 3.3% this year. Their forecast for next year is much more modest, expecting growth of just 3.2%. These figures reflect a complex interplay between recovery efforts in various regions and the challenges posed by heightened geopolitical uncertainties.
US Policy Decisions Impact Global Economies
In recent months, the US has taken unprecedented – and unexpected – policy actions that have sent shockwaves through global markets. https://www.flickr.com/photos/panos/24070440538 The Trump administration’s decision to freeze foreign aid has raised alarm bells among developing countries. These countries greatly rely on this assistance to prevent their collapse and economic implosion. Experts are concerned that steps like those proposed by the administration could further inflame instability in these areas, undermining U.S. interests and development objectives.
Furthermore, the ongoing review of the US’s role in international financial institutions raises questions about the future of global cooperation in economic matters. Some analysts warn that a less active US role could sap multilateral initiatives of their strength and effectiveness in confronting emerging global financial burdens. This shift is deeply troubling, in particular because of how interconnected today’s economies have become.
US policy’s reach goes far outside the developing world. Combined with increased lending rates and a boom in deregulation in both US and international finance, these factors are extremely perilous. These dangerous dynamics are putting global economic stability at risk. These improvements come against a backdrop of increasing concern over possible corrections in asset valuations, which have been bubbly in several markets.
Growth Projections and Regional Developments
In spite of these challenges, many areas are showing signs of economic resurgence and expansion. Across Europe, this recovery is most evident in peripheral regions. Forecasters point to this increase as a sign of a growing economy, portending a long-term positive trajectory. The European economy benefits from increased defense spending due to ongoing geopolitical tensions, particularly related to Russia’s war in Ukraine.
Scope Ratings forecasts safe and stable growth for most European countries. Germany and France at 1.0% next year have a similar growth outlook as well. Italy to come in a distant second with 0.7% growth. At the opposite end of the spectrum, Spain, Portugal, and Greece are projected to expand by 2.5%, 2.1%, and 2.0%, respectively.
The UK economy is set to grow by modest 1.0% next year. Unfortunately, this growth does not reflect the unique opportunities for growth and its challenges it faces in an ever-shifting global landscape. Growth rates have varied widely in different parts of Europe. This complexity makes it all the more difficult for countries to ensure economic growth.
Emerging Markets and Future Risks
Scope Ratings is very bullish on China’s future growth. They forecast a ceiling of 4.7% next year after the country just achieved its first successful growth target of 5% this year. This remarkable growth illustrates China’s continued rebound from the COVID-19 pandemic and its central place in our evolving global economic landscape.
Emerging markets are highly vulnerable to the risks posed by leverage in non-bank financial intermediation sectors, not least private credit. Further complicating the picture, the less-regulated sectors like artificial intelligence and cryptocurrency add more uncertainty. As these markets adapt to the changing landscape, they present serious concerns around long-term sustainability and regulatory oversight.
The combination of geopolitical uncertainties and economic risks highlights the delicate balance that economies must maintain as they navigate towards recovery. Fragilities remain widespread, particularly in regions such as the Middle East, and the current war in Ukraine has worsened this fragility. Now, more than ever, global leaders need to be vigilant and ambitious in directing policies and facilitating international cooperation.