The sun is setting on 2024, but the consequences of its many events will be felt around the world well into next year and beyond.
This year, Israel’s war against Hamas in Gaza escalated and spilled over to Lebanon, where Israel waged a war on Hezbollah until a shaky ceasefire was agreed last month. In Syria, rebels finally toppled Bashar al-Assad in a lightning offensive this month, and Russia’s war in Ukraine entered its third year.
But it is voters’ choices, in what was a record year for national elections, that will likely have the biggest impact on global prosperity in 2025 — most notably, the reelection of former US President Donald Trump.
“There’s a lot of frustration out there at how the global economy is going,” said Nathan Sheets, global chief economist at Citi and a former under secretary at the US Treasury, noting the poor performance of many governing parties in this year’s 60-plus elections.
“The political climate feels more uncertain to me than at any time I can remember,” he told CNN.
For many economists, the main source of that uncertainty is Trump’s looming return to the White House and, in particular, the question of tariffs.
On the campaign trail, Trump talked about imposing a 10-20% levy on all goods imported into the United States and a tariff of at least 60% on Chinese imports. In late November, after his victory against Kamala Harris, he said he wanted to slap a 25% import tax on Mexico and Canada and “an additional 10% tariff, above any additional tariffs” on China.
Forecasters have come up with varying predictions of the damage Trump’s new tariffs would cause to other economies, partly depending on the level of the duties. But damage there will be.
“I continue to think that restrictions on trade, protectionist measures, are not conducive to growth,” Christine Lagarde, president of the European Central Bank, told reporters earlier this month when asked about Trump’s possible tariffs on European imports.
Higher tariffs could backfire on the US economy itself, the largest in the world. Goldman Sachs sees a sizable blow to US gross domestic product, peaking in 2026, from a potential 10% tariff on all imported goods — in part due to higher consumer prices, which would reduce spending by Americans.
The impact of higher US tariffs on the global economy overall will also depend on how affected countries respond — by, for example, raising their own duties on US imports.
“This could end in a global trade war which, while it could take many forms, at the extreme could knock 2-3% off global GDP,” consultancy Capital Economics wrote in a recent note. Based on current trends, a 3% hit to the world’s output would erase most economic growth.
But companies don’t like uncertainty and, even if Trump doesn’t introduce higher universal tariffs, concerns that he might hit at least some countries or industries will weigh on business investment and, so, the economies of America’s trade partners.
That is what analysts at Goldman Sachs and J.P. Morgan think. Both banks have adjusted their predictions for European growth next year as a result.
“The impact is more direct in China, which will almost certainly face (steep) tariff increases,” the Goldman Sachs analysts wrote last month, downgrading their 2025 forecast for the world’s second-largest economy.
Another way Trump’s new import taxes could hurt the global economy is by contributing to a fresh bout of inflation in the US and elsewhere. American prices will also rise faster if, as promised during his campaign, he cuts taxes and cracks down on immigration, potentially leading to labor shortages and higher wage bills.
Chaos and stagnation
The US is by far not the only country that saw seismic political change this year. French President Emmanuel Macron called a snap parliamentary election in the summer, resulting in a minority government that collapsed earlier this month. Similarly, the governing coalition in Germany, the world’s third-largest economy, fell apart last month, paving the way for a snap election in February 2025.
The new cabinet in Paris, unveiled Monday, will likely struggle to govern just as its short-lived predecessor did, with a parliament where no faction has a clear majority. That will keep the political environment unstable, curbing business investment and consumer spending.
“Political chaos will weigh on growth” in France next year, European bank ING said in a recent report. “The constant threat of censure against any government put in place, the impossibility of passing a budget to put the public finances in order and the prospect of yet more elections is simply fueling uncertainty.”
The uncertainty is set to last until at least the middle of next year, the earliest that another parliamentary election can take place, according to the French constitution.
Germany’s fortunes in coming years will, to a significant extent, depend on the outcome of the upcoming election. A key question is whether the new government will borrow more to invest and implement structural reforms to deliver a much-needed boost to growth.
“If not, stagnation will be the new normal,” ING said.
In addition, any new US tariffs on imported goods will matter greatly to Germany, given its big industrial sector and America’s role as Germany’s second-most important trading partner, behind only China.
Impact of wars
Global growth could also be affected by what happens in the oil-rich Middle East, though economists are at this point less worried about near-term negative consequences of hostilities there.
“The parameters of the current conflict are not directly jeopardizing the (flow of) oil,” Sheets at Citi told CNN. It could spread, he said, but “the major countries in the Middle East don’t want a regional conflict — if that was something that they were open to, we would already have seen it.”
Oil prices have declined from a peak reached shortly after the October 7, 2023 Hamas attack on Israel and now stand at levels seen in June last year.
As for neighboring Syria, even before its devastating civil war broke out in 2011, the country didn’t account for a large share of global oil output, and the fighting destroyed much of its oil infrastructure, noted Capital Economics. “Developments in Syria will have very little impact on the global economy,” the consultancy said the day after Assad was overthrown.
Russia’s war in Ukraine has already left its mark on the world’s economy, keeping natural gas prices in Europe much higher than had been the norm. Trump has said he wants to bring the war to an end quickly — what that solution looks like will determine its economic consequences.
While “an orderly ceasefire” may boost business confidence in Europe and lower energy prices, Citi analysts Christian Schulz and Giada Giani said, “a disorderly collapse” could trigger even bigger refugee flows into the region and “spread conflict with Russia.”
