Global Stock Markets and the world economy stands at a fragile turning point, characterized by intensifying trade disputes and rising policy unpredictability, according to the World Economic Situation and Prospects mid-2025 update. The recent escalation in tariffs—pushing U.S. tariff rates sharply upward—threatens to increase production expenses, disrupt international supply chains, and heighten financial instability.

Uncertainty surrounding trade and policy directions, together with an unsettled geopolitical backdrop, is leading firms to postpone or scale back essential investment plans as a part of Global Stock Markets. These shifts are worsening pre-existing pressures, including heavy debt burdens and weak productivity gains, further dimming global growth expectations.

Worldwide GDP expansion is now projected at just 2.4 per cent in 2025, down from 2.9 per cent in 2024 and 0.4 percentage points below the forecast issued in January 2025.

Sluggish growth, persistent inflationary forces, and declining trade—including a forecast drop in trade growth from 3.3 per cent in 2024 to 1.6 per cent in 2025—pose serious risks to achieving the Sustainable Development Goals.

Broad-based weakening in growth outlook

The slowdown spans both advanced and emerging economies. U.S. growth is expected to ease markedly, from 2.8 per cent in 2024 to 1.6 per cent in 2025, as elevated tariffs and persistent policy uncertainty dampen private investment and consumer spending. In the European Union, GDP growth is projected at 1.0 per cent in 2025, unchanged from 2024, weighed down by weaker exports and increased trade obstacles.

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China’s expansion is set to moderate to 4.6 per cent this year, reflecting fragile consumer confidence, setbacks in export-oriented manufacturing, and continued real estate sector difficulties. Several large developing economies—including Brazil, Mexico, and South Africa—are also facing downward revisions due to slowing trade, reduced investment, and falling commodity earnings. India, while revised down to 6.3 per cent growth in 2025, continues to be among the fastest-growing major economies due to Global Stock Markets.

“The tariff shock risks dealing a heavy blow to vulnerable developing countries, curbing growth, cutting export income, and worsening debt problems—especially as these nations are already struggling to secure the resources required for sustainable, long-term development,” stated Li Junhua, United Nations Under-Secretary-General for Economic and Social Affairs.

Inflationary pressures persist

Although global headline inflation fell from 5.7 per cent in 2023 to 4.0 per cent in 2024, price pressures remain elevated across many economies. By early 2025, inflation was still above pre-pandemic levels in two-thirds of countries, with more than 20 developing nations experiencing double-digit rates of Global Stock Markets.

Food price inflation—averaging above 6 per cent—continues to disproportionately affect low-income households, particularly in Africa, South Asia, and Western Asia. Rising trade barriers and climate-related disruptions are compounding inflation risks, highlighting the importance of coordinated actions that combine credible monetary policy, well-targeted fiscal measures, and longer-term reforms to stabilize prices and protect the most vulnerable.

In many economies, monetary policy has become more complex amid uncertainty. Central banks face difficult choices between controlling tariff-driven inflation shocks and supporting weakening growth. Meanwhile, limited fiscal capacity, especially in developing nations, restricts governments’ ability to cushion the downturn effectively.

Dimming development prospects amid fragmentation

For numerous developing economies, the unfavorable global environment undermines efforts to generate jobs, alleviate poverty, and reduce inequality against Global Stock Markets. In the least developed countries—where growth is set to slow from 4.5 per cent in 2024 to 4.1 per cent in 2025—shrinking export revenues, tighter financial conditions, and falling official development assistance threaten to erode fiscal space and raise the risk of debt distress.

Deepening trade frictions are adding pressure to the multilateral trading framework, leaving smaller and vulnerable economies increasingly sidelined in a fractured global order.

Enhancing multilateral cooperation is vital to confront these headwinds. Reviving the rules-based trading architecture and extending targeted assistance to vulnerable countries will be essential to promote inclusive and sustainable development.

The upcoming Fourth International Conference on Financing for Development will play a pivotal role in advancing these priorities.

The global economic outlook has brightened compared to the earlier projection issued in January 2024.
In spite of the most forceful monetary tightening in decades, the likelihood of a severe downturn in the United States economy has largely diminished. Most major economies have succeeded in lowering inflation without pushing up unemployment or triggering a recession.

Still, the outlook remains cautiously positive, as persistently high interest rates, debt vulnerabilities, and rising geopolitical tensions will continue to weigh on steady and sustainable growth. Increasingly severe climate shocks further complicate the global outlook, endangering decades of development progress, particularly for the least developed countries and small island developing States.

The rapid pace of technological transformation—including advances in machine learning and artificial intelligence—brings both opportunities and risks. While these innovations could raise productivity and expand knowledge, they also risk deepening digital divides and reshaping labor markets.

The world economy is now projected to expand by 2.7 per cent in 2024 (up 0.3 percentage points from the January forecast) and 2.8 per cent in 2025 (up 0.1 percentage points). The upward adjustments mainly reflect stronger prospects in the United States and several major developing economies.

The 2008 financial crisis was the most severe shock to the global financial system in nearly a century. It originated from a housing bubble in the United States, fueled by an excessive reliance on mortgage-backed securities.

Banks and lenders provided mortgages at very low interest rates, encouraging many households to borrow far more than they could realistically repay.

This irresponsible lending caused a record number of defaults, which triggered massive losses and pushed numerous financial institutions into bankruptcy.

ECB vs. the Fed
The U.S. stock market reacted positively to the Federal Reserve’s swift and aggressive interest rate cuts, while European markets declined due to the European Central Bank’s slower and more cautious response, reflected in falling indices and weak GDP figures.

The Fed’s decisive actions and significant rate reductions reassured investors, creating the perception of a financial safety net. In contrast, the ECB’s delayed measures were viewed as insufficient and reactive rather than proactive, signaling that the Bank was following events rather than anticipating them.

The Fed’s clear commitment to averting a systemic collapse preserved its credibility, despite risks to price stability. Meanwhile, the EU’s stricter monetary stance, combined with fiscal austerity and banking sector fragility, undermined market confidence.

As a result, Eurozone growth lagged behind the United States and never fully recovered. Many analysts argue that the ECB’s misjudgment left a lasting mark on Europe’s slow recovery.

Reforms in the European financial system
The U.S. subprime mortgage crisis pushed Europe’s financial sector to the brink, exposing the Eurozone’s incomplete monetary union and its lack of emergency mechanisms. Southern European economies were hit hardest, as they were compelled to adopt severe austerity measures demanded by wealthier Northern members.

The fear of further crises drove EU governments to coordinate a comprehensive reform of their financial framework, introducing emergency rescue funds and establishing the European banking union.

Although the monetary union is still unfinished, the Eurozone today is more resilient and better equipped to withstand future economic shocks—even after the UK’s departure from the EU.

2019–Present: The COVID-19 crisis
The COVID-19 pandemic was an extraordinary global event with profound consequences. It disrupted societies worldwide and severely harmed global economic growth from 2020 onward.

Its economic impact remains prolonged, extending beyond conventional indicators, with the potential for deep and lasting effects.

European solidarity
At the start of the pandemic, EU member states experienced unequal infection rates and adopted vastly different public health responses, often clashing with the European Commission’s attempts to coordinate a unified strategy.

Eventually, the severe economic halt pushed EU leaders to recognize the pandemic as a shared challenge requiring collective solutions. After a marathon summit, they approved a €750 billion recovery package to revive the bloc’s economy.

Additionally, the EU implemented a joint vaccine procurement plan, which proved highly successful in guaranteeing equal vaccine access across all member states, regardless of financial strength.

This demonstrated that the EU can develop bold, innovative policies—provided there is strong political support from its members.

Mixed reactions to the UK’s pandemic relief
The UK’s handling of pandemic relief drew a divided response. While many applauded the role of the National Health Service (NHS), the government was criticised as decades of underfunding had caused staff shortages, health inequalities, and weak social care systems.

There was no consistent strategy at the onset of the pandemic. Worse still, the UK was unprepared for a second wave. Public health messages became inconsistent and confusing, while political leaders focused more on lifting restrictions than on preparing for future outbreaks.

At the same time, the Bank of England and the Prudential Regulation Authority (PRA) introduced a set of regulatory measures to help households and businesses cope with the economic fallout.

These steps had some success. However, in October 2022, the Bank of England ended its emergency support scheme, making it the first G7 nation to do so — a move many considered premature.

The Fed’s shortcomings exposed
The Federal Reserve’s response in 2020 contrasted with that of 2008, as the recession was caused by external shocks. Moreover, the Fed had limited room for traditional rate cuts since interest rates were already unusually low beforehand.

Nonetheless, the Fed quickly slashed rates to near zero and began aggressively purchasing mortgage-backed securities, which had become highly unstable and hard to trade. This boosted liquidity, injected funds into the economy, and reassured the public about the Fed’s ability to protect the financial system.