Global growth driven by strong US economy expected in 2025

SINGAPORE – The world is expected to achieve positive growth in 2025 despite continued trade and geopolitical tensions and relatively higher interest rates than in previous years, the leaders of some economies and financial institutions said.

However, much of that growth will be mostly driven by the US, International Monetary Fund (IMF) managing director Kristalina Georgieva told a World Economic Forum (WEF) panel in Davos, Switzerland, on Jan 24.

This is because the US has higher productivity levels, capital availability and opportunities for entrepreneurship than the rest of the world, as well as a strong culture of confidence, she said.

With confidence and trust levels down in the rest of the world, countries will need to rebuild a basis of optimism for growth, and avoid moving towards a fragmented, zero-sum world, where one country’s gain comes at the expense of another, said Singapore President Tharman Shanmugaratnam, who was also on the panel.

Using the innovativeness of the Americans and the talent of the Europeans as examples of each economy’s strengths, he added that Asian countries can also leverage their desire to stay open and interdependent to grow.

Ms Georgieva and Mr Tharman were joined by Saudi Minister of Economy and Planning Faisal Alibrahim, European Central Bank president Christine Lagarde and BlackRock chairman and chief executive Laurence D. Fink in the discussion on the global economic outlook in 2025.

The penultimate session of the five-day WEF was moderated by CNBC financial news anchor Sara Eisen.

Global growth is projected by the IMF to be 3.3 per cent in 2025, with an upward revision in the US offsetting downward revisions elsewhere. It expects the US to achieve 2.7 per cent growth in 2025, representing a sharp upward revision from 2.2 per cent in previous forecasts.

Ms Georgieva noted that it is the first time the world economy is seeing a period where growth is positive, even as interest rates are being kept “somewhat high” to keep inflation under control.

This is because of stronger economic policy coordination between countries and central banks after the 2008 global financial crisis.

Moving forward, “if we succeed in bringing inflation down and still retain a functioning economy where people have jobs and develop more confidence, it would be a very good outcome”, Ms Georgieva said.

She conceded that this situation is coming at a time when protectionist measures such as tariffs have been on the rise. However, she noted that the countries that are performing the best are those that are “friends with everybody”.

“In my view, over time, we will see a world with more regional cooperation, more cooperation based on supply chains and engagement that allows countries to achieve their objectives.”

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But Mr Tharman cautioned that the world is now in an unprecedented stage where developed market populations and, increasingly, China’s have stagnated and are ageing, while emerging markets like Africa and India are seeing their populations grow rapidly.

He said the world’s challenge would be to draw up a global industrial policy “so that we can benefit globally from higher productivity, but also a lower cost of goods for consumers around the world”.

He said some industrial policies are driven by politics and geopolitics. “It is happening by way of drift, and tit-for-tat action, and we’re in an unstable situation now, globally.

“The jury is out as to whether this is going to succeed in lifting standards of living for ordinary people, for the middle class, and lifting economic performance for countries.”

Mr Tharman stressed that industrial policies that have succeeded in the past were those that involved countries developing their own capabilities and research and development skills, as well as those that spurred innovation through competition as key to long-term growth.

“The evidence still supports the proposition that global interdependence and specialisation by each country is good for everyone. We do better when we specialise and develop scale in what we are good at,” he said.

Mr Tharman added that opportunities for growth exist for countries that are able to maximise their human potential and which can find ways of developing social compacts. This is so that people feel some sense of solidarity, thereby building the political basis and consensus to keep economies open and interdependent.

He said three things must go together: “The economic strategy of openness, the social policy of intervening to help everyone uplift themselves, and the politics that then allows you to carry on being open. If any one of those fails, each of them falls apart.” 

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