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World—Policy uncertainty to define the 2025 economic outlook
The global economy remains resilient, albeit lacklustre. January IMF forecasts suggest global growth will remain steady at 3.3% this year and next, below the historical (2000–19) average of 3.7% (Chart). But while the global outlook is broadly unchanged, divergences across countries are widening. Among advanced economies, the US is stronger than previously projected, with GDP growth of 2.7% now expected in 2025, driven by robust productivity growth and consumption. Meanwhile, growth in the euro area is expected to increase only modestly, to 1.0% this year, amid weak manufacturing exports, persistent high energy prices and low consumer confidence. Australia’s largest regional export markets will remain the world’s growth engine; with China and ASEAN both forecast to expand by 4.6% and India by 6.5% this year.
Uncertainty is high amid geopolitical conflicts, extreme weather events, societal and political polarisation, and technological advancements. Economic policy uncertainty has also spiked, especially on the trade and fiscal fronts, with many governments newly elected in 2024. Intensified protectionist policies could lower investment, reduce market efficiency, and disrupt supply chains. Policy-induced disruptions to the ongoing disinflation process could interrupt monetary easing, with implications for the sustainability of public finances and stability of financial markets. Emerging markets are particularly exposed, given their reliance on external financing and export-driven growth. The Global Risks Perception Survey confirms an increasingly pessimistic outlook. Most respondents (52%) anticipate some instability and a moderate risk of global catastrophes over the next two years, while 36% expect even more turbulent conditions. State-based armed conflict is the risk most expected to cause global crisis this year, followed by extreme weather events and geoeconomic confrontation (as sanctions, tariffs and investment screening become more common). Vigilance and diversification will remain important for Australian exporters.
