Eight Headwinds Threatening Global Growth in 2025 by Dambisa Moyo @ Project Syndicate

The economies of the United States, the European Union, and Japan are all projected to grow by less than 3% per year for the foreseeable future – the threshold needed to double per capita income within a generation (25 years). At the same time, large emerging economies like Brazil, Argentina, and South Africa are also expected to experience sluggish growth over the next decade.

While total global GDP has increased to $110 trillion, progress remains unevenly distributed, threatening to erode living standards. Worse, the world economy faces powerful headwinds that could stifle growth, innovation, and investment, triggering political and social instability.

Governments and business leaders must adjust their models and assumptions accordingly. In the face of significant policy shifts, investors will need to rethink their investment and allocation strategies to navigate an era defined by uncertainty and uneven growth.

Looking ahead, eight risks to global GDP growth stand out: geopolitical fissures; divisive domestic politics; technological disruption and the rise of artificial intelligence; demographic trends; rising inequality between and within countries; natural-resource scarcities; government debt and loose fiscal policies; and deglobalization. Taken together, these headwinds will be a persistent impediment to economic growth in the coming years.

No World Order

The first drag on global growth is the escalation in geopolitical tensions – particularly among the US, China, and Russia – compounded by additional threats from Iran and North Korea. As the rift between developed and developing economies widens, developing countries are increasingly joining economic alliances like the BRICS bloc, which expanded from five members at the start of 2024 to nine by the end of the year. In the near term, there is a growing risk that this geopolitical tug-of-war could escalate into an all-out military conflict.

Populism and Domestic Politics

Many advanced economies are also grappling with deepening political polarization at home. …developed economies’ budgets are increasingly strained by expanded welfare programs. In 2022, for example, the EU spent €3.1 trillion ($3.3 trillion) – 19.5% of its GDP and nearly 40% of its total expenditures – on social protection.

AI and Technological Disruption

…PwC projects that AI could add $16 trillion to global GDP by 2030, potentially ushering in the first major economic super cycle in a half-century. The last super cycle, which began in the 1980s, was driven by the restructuring of supply chains that accompanied decades of globalization … there are valid concerns that the rapid growth of AI, coupled with the enormous amounts of energy required to operate data centers, is at odds with efforts to mitigate the worst effects of climate change and achieve a smooth energy transition.

Demographic Changes Could Impede Growth

The world is experiencing profound demographic shifts that affect both the size of the global population and the quality of the labor force. According to the United Nations, the world’s population is expected to grow from roughly eight billion today to 10.4 billion by 2100. … One particularly concerning trend is the inverse relationship between population growth and economic performance. Countries with rapidly expanding populations are experiencing slower economic growth, while the populations of high-performing economies tend to grow more slowly.

Rising Disparities

Inequality – not just in income and wealth but also in access to quality education, health care, and infrastructure – has long been recognized as a drag on economic growth. Rising within-country inequality can be partly attributed to declining social mobility. In the US, studies have found that the likelihood of moving from a low-income household to a higher-income one has fallen by half over several decades. This decline helps explain Americans’ discontent with globalization, given that its benefits have largely gone to investors and business owners rather than to workers.

Resource Scarcities and the Energy Transition

Natural resources – especially arable land, potable water, energy, and rare-earth elements – are becoming increasingly scarce. Historically, technological innovation has mitigated such risks, but today’s geopolitical turmoil and economic fragmentation threaten to aggravate shortages, driving up commodity prices and fueling inflation.

Strained Government Budgets and Fiscal Pressures

The unsustainable fiscal policies of the world’s largest economies, whose debt-servicing burdens weigh heavily on governments and private borrowers, threaten to erode living standards. By the end of 2024, public debt is expected to hit $100 trillion, or 93% of global GDP. Worryingly, the debt-to-GDP ratios of the US and the United Kingdom have already surpassed 100%.

Accelerating Deglobalization

The retreat from globalization threatens every pillar of the international economic order: trade, capital flows, immigration, and multilateralism. … the fragmentation of global trade has been underway for years, at least since globalization peaked around 2007. While trade volumes have increased since then, growth remains relatively weak as governments worldwide impose tariffs, quotas, and other barriers, renegotiate trade agreements, and divide into increasingly exclusive trading blocs. … The breakdown of the multilateral order is also intensifying migration pressures.

Adapting to a Fractured Global Economy

Despite these risks, current global conditions present opportunities for investors, business leaders, and policymakers, provided they allocate capital wisely, manage risks effectively, and adhere to a few guiding principles.

For starters, they must reassess their financial, operational, and hiring practices..