Global Economic Outlook 2025

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Making forecasts, especially in turbulent times, is a thankless task. However, not making forecasts is not an option. The coming year and years ahead may resemble a flock of black swans—too many unknown variables influencing outcomes at once. One thing is certain: the coming years will be eventful. This is good news for observers who are well-hedged or players eager to take calculated risks, but less so for ordinary economic agents who prefer stability over uncertainty. However, what may seem like a black swan to one person could be a perfect nightingale to another.

United States

North America, and particularly the USA, remains the largest and most liberal market for labour and capital. It is the market that drives and influences the rest of the world.

The country has enjoyed reasonable GDP growth for a developed nation and is expected to achieve an increase of 2.3% to 2.5% in 2025, accompanied by low unemployment and relatively mild inflation of around 2.2% annually. This appears nearly ideal. However, while the economy is growing, it is being fuelled by an ever-mounting debt burden.

These forecasts do not take into account potential shifts stemming from Trump’s administration, particularly trade tariffs and immigration policies. Higher tariffs would lead to increased inflation in the short run, while in theory, they could encourage domestic production. However, if we factor in an immigration policy that affects 11 million undocumented consumers and labourers, the results become uncertain. Labour costs may rise, and domestic consumption may decline depending on the scale of the affected population. If only a small number of undocumented immigrants are expelled, the effect would be negligible; otherwise, the impact could be significant.

In turbulent times, the U.S. remains the only true safe-haven, leading to an overvalued currency, debt, and stock market. Stock valuations appear high, implying that returns in 2025 may be subdued, with an elevated probability of corrections.

Corporate bonds do not appear to offer adequate returns relative to risk. The default rate in the U.S. could rise well above historical averages.

A weaker dollar would help boost exports, but achieving such a scenario is challenging. A strong appetite for USD is natural in times of uncertainty. Moreover, the euro is not positioned to challenge the supremacy of the dollar due to Europe’s weak economic performance and geopolitical instability on its borders.

The high-interest rate environment may persist longer than anticipated. If President Trump implements tariff policies, inflationary pressure will remain high, making it unlikely that the Federal Reserve will reduce interest rates. Consequently, the cost of debt will stay high. We believe that while tariffs and immigration policies will have an impact, the most significant challenge for the U.S. economy remains its national debt burden.

Given the size of the debt and the necessity to refinance old obligations at elevated interest rates, debt sustainability becomes a concern. This raises the question of whether a U.S. default is inevitable in the next decade unless drastic measures are taken to reduce debt. However, a default does not necessarily mean failing to meet obligations on time—it could take the form of debt restructuring or the creation of distinct “domestic” and “international” dollars, where international lenders are unable to use “international dollars” to acquire U.S. hard assets.

Such a division would prevent foreign lenders from selling off U.S. Treasuries to buy American assets at any price, that would otherwise elevate domestic inflation to cosmic heights. The creation of separate “domestic” and “international” dollars could cause global turmoil but might not be disruptive within the U.S. itself. This could, in theory, address two issues simultaneously: debt restructuring and the weakening of global competitors.

For now, this remains a theoretical scenario, while the U.S. continues to be the most attractive developed market for investors.

Latin America

Inflation rates in the region have been gradually declining, though the situation varies considerably from country to country. Mexico is performing well in this regard, targeting a 3% annual inflation rate by 2025. In contrast, Brazil is struggling to keep inflation below 5%. At the same time, Argentina is aiming to reduce inflation to under 45% in 2025, a significant improvement from 145% in 2024.

As for GDP growth, Latin America is expected to see a 2.5% increase in 2025. While this isn’t particularly remarkable, it’s still significant enough to attract attention. Analysts highlight Argentina as a country with strong GDP growth potential, projecting 5%, while Brazil targets 2.2%, and Mexico forecasts a more modest 1.4% annual growth.

Overall, the regions looks quite attractive. Potential black swan may by fly from Venezuela, given uneasy domestic political situation which may evolve from political struggle to struggle on the streets. If USA would manage to deport 600 thousand of Venezuelans back to their home country, this may change the balance of power.

MENA (Middle East and North Africa)

The Middle East remains overshadowed by the potential for conflict between Iran and Israel. Meanwhile, the war in Gaza has paused, but uncertainty looms over how long this will last. These geopolitical “time bombs” could significantly impact economic forecasts, particularly by disrupting oil supplies and shipping logistics. A major black swan event would be a localized nuclear conflict, which, while not an extinction-level catastrophe, could trigger a “nuclear winter.” The resulting collapse in food production could drive mass famine and significant migration flows from poorer to wealthier nations, bringing widespread socio-economic consequences.

The region is witnessing a decline in inflation, dropping from 15.4% in 2023 to a projected 12.4% in 2025, with Egypt, Turkey, and Iran being the biggest contributors. Turkey’s Central Bank aims to keep inflation below 21% in 2025—a major improvement from the staggering 74% in 2024. The UAE remains one of the most disciplined economies, with an expected inflation rate of just 2.2% in 2025. Israel is also managing inflation well, targeting a rate below 3%.

The UAE continues to stand out with an expected GDP growth of around 4% in 2025. Egypt is projected to achieve a similar growth rate of approximately 4%. Israel’s GDP is expected to increase within a range of 2.4% to 3.8%.

Turkey also anticipates substantial economic growth, ranging from 2.6% to 4% in 2025, making it an attractive market. However, due to persistently high inflation, investment opportunities may be more favourable in Turkish export-driven assets, which have the potential to deliver strong returns.

From a risk-return perspective, the UAE stands out as a strong bet, though selectivity is crucial—particularly in real estate development projects. Israel also appears attractive; however, ongoing regional instability may deter both lenders and investors.

Africa

Africa is a highly diverse region, with each country facing its own unique challenges. However, the overall outlook is relatively favorable, with inflation rates transitioning from astronomically high to simply elevated levels.

The region's most attractive feature is its GDP growth potential. At least 10 countries are expected to experience GDP growth above 6%, making it a promising area for investment. That said, it’s crucial to have a knowledgeable local guide when navigating these opportunities.

A potential black swan event could arise from a conflict in the Republic of Congo, near the city of Goma. The area holds deposits of rare minerals crucial for electronics production, and any disruption there could lead to significant supply chain issues.

Australia and New Zealand

A quiet corner of the world, both Australia and New Zealand are known for well-managed inflation, expected to range from 2% to 3% in 2025. In terms of GDP growth, Australia has a more promising outlook, with a projected growth rate of around 2% for 2025. In contrast, its neighbour, New Zealand, is aiming for a modest 0.6% growth. For those seeking stability and a bunker to survive apocalypse this part of the world is an ideal choice.

Asia

The overall inflation trend in Asia for 2025 appears to be one of moderation, with a target of 2.6%. However, individual economies may experience varying inflationary pressures due to factors such as domestic demand, commodity price fluctuations, and monetary policy decisions.

Today, the two main pillars defining Asia’s—and soon the world’s—economic well-being are India and China. Japan remains a key player, but its role is diminishing compared to these two regional giants.

China’s inflation for 2025 is expected to remain low, around 0.9%. Japan, however, is experiencing relatively high inflation by its standards, with an expected range of 2.5% to 2.9%. India, on the other hand, is anticipating the higher inflation range for 2025, from 4.6% to 6.2%.

As for growth prospects, the so-called "Asian Tigers" may not be as fierce as they were 20 years ago, but they still offer impressive growth compared to developed countries in the EU, with a projected GDP increase of 4.3%. India is aiming for a 6.6% GDP growth, while China’s target is 4.5% (slightly lower than the 4.9% forecast for 2024). Japan is targeting a modest growth range of 1.0% to 1.4% in 2025.

While we consider India the most favourable economy in the region, with China in second place, currency convertibility remains a challenge for both. Japan’s currency may seem undervalued, presenting potential opportunities for forex experts in 2025.

CIS (Commonwealth of Independent States)

The Commonwealth of Independent States (CIS) is experiencing diverse inflation trends across its member countries. The region's average inflation rate is expected to decline compared to previous years, although it remains elevated relative to global standards.

Uzbekistan and Kazakhstan are targeting inflation rates between 7% and 8% in 2025, while Azerbaijan aims to keep it around 5.5%. The Republic of Georgia stands out for its disciplined inflation management, with inflation in 2024 at around 2%, and it is expected to remain at similar levels in 2025.

Both Ukraine and Russia are grappling with the effects of a bitter war, yet they have managed to contain inflation, with both countries projected to maintain an annual rate of around 10%.

The economic outlook for the CIS region in 2025 is mixed. Kazakhstan and Uzbekistan are expected to show resilience, with both countries projected to experience a GDP growth of around 5.5%. In contrast, Russia and Ukraine face significant economic challenges.

Nevertheless, projected GDP growth of 1.4% to 2.5% for Russia and around 2.5% for Ukraine remains higher than that of leading EU economies like Germany.

Azerbaijan’s growth is expected to be more modest, at around 2.7% in 2025, while the Republic of Georgia is set to outperform its regional peers with an anticipated GDP growth of around 8%.

While the major black swan events have already unfolded in Ukraine and Russia, the situation could escalate into a "dragon-sized" crisis if the conflict intensifies further, potentially involving NATO.

For those seeking undervalued assets, Russia and Ukraine may present opportunities, as their low valuations could attract investors willing to take on the risks. As Nathan Meyer Rothschild famously said, "Buy when the cannons are firing, and sell when the trumpets are blowing."

For those prioritizing macroeconomic stability, the Republic of Georgia stands out as an attractive option, with low inflation and strong GDP growth. While Uzbekistan and Kazakhstan are doing well, they are somewhat saturated with lenders and investors at this stage.

Europe and the UK

The UK is expected to keep inflation within the 2% to 3% range in 2025, which is relatively manageable in today’s environment. However, overall economic performance is unlikely to impress. GDP growth is forecasted to range from 0.9% to 1.7%. As a result, the UK is not currently a top choice for fixed income or equities, especially considering rising default rates and the weakening pound (which has been in decline for the past 50 years).

The EU has made impressive strides in curbing inflation, which is expected to fall from 6.3% in 2023 (driven by pandemic-related fiscal stimulus) to around 2.0%–2.2% in 2025.

However, from an economic growth perspective, Europe is not in a strong position. Robust growth is not expected, and the region is likely to maintain a survival mode for the foreseeable future—presumably until the war in Ukraine ends and access to cheap Russian gas and CIS markets is restored.

The EU Commission is aiming for GDP growth of around 1.5%, though some reputable independent analysts are forecasting a much lower figure, as low as 0.8% for 2025. Among the EU’s economic "sicklings," Germany, the engine of Europe, is struggling with a modest 0.3% GDP growth forecast for 2025, along with Italy (0.6%) and France (0.7%). On the other hand, Spain is seen as a model for navigating tough economic times, projecting 2% GDP growth in 2025. With Russia’s cheap gas supplies—its second-largest supplier—Spain holds an advantage over other morally resilient EU countries that buy much more expensive, but morally "clean," gas from the USA.

As a result, we believe that default rates in the EU are unlikely to improve in 2025, and debt valuations don't appear to offer a good risk-return potential. Stock markets are not impressing the investment community, though there is always the potential for "cherry picking" individual opportunities.

The strength of the euro has been in decline, and it wouldn't be surprising to see parity with the USD in the coming years. Remember, in 2001, it took EUR 1.2 to buy USD 1.0. Who can say it won’t happen again?

Regardless of what happens, for euro-based lenders and investors, the EU remains a crucial region. Perhaps now is the time to seek undervalued assets.

Final Notes

Having completed this geographic breakdown, it's important to emphasize that all forecasts are based on assumptions that are subject to change without notice. If any country falls out of favor with the U.S. administration, these assumptions could shift dramatically.

Asset Classes Outlook

As with the past, present, and future, the key to successful investment is identifying undervalued instruments, taking into account all factors such as liquidity premiums and other relevant considerations.

In terms of asset classes, we observe the following trends:

Fixed Income

There is a general consensus that corporate bonds (marketable securities) are currently not delivering adequate margins. However, it appears to be a good time for private debt funds and term loan B instruments to generate solid returns. Structured products, such as export finance, development loans, and syndicated loans, offer promising yields. Opportunistic lending funds are also worth considering.

Liquid hedge funds focused on fixed income instruments could present an appealing option as well.

Equity and Equity-like Assets

When it comes to equities, most analysts consider U.S. stock markets to be generally overvalued. Mature stock markets have already experienced their rallies in 2023-2024, and it seems that even low teens yields would be considered a strong outcome in 2025.

Private equity deals and venture capital investments—including quasi-equity, fixed income plus upside structured products—appear attractive, provided there is proper diversification and/or investment through a fund managed by a reputable asset manager. Limited partnerships in real estate development still have good potential.

Conclusion

The above insights provide a rough and general view of what we might expect from 2025. They reflect our observations and opinions, which, of course, could prove to be incorrect.