S&P Global ratings warns of geopolitical risks amid 2025 economic recovery

A global economic expansion of 3% is forecast for 2025, driven by easing inflation, resilient labor markets, and sturdy consumer spending in most developed markets. The growth slowdown in the US and China, the world's two biggest economies, will be offset by the eurozone's continued recovery and emerging markets finding their footing.

Despite the positive outlook, geopolitical uncertainty and region- and country-specific divergence pose notable caveats. Central banks have started lowering interest rates, and further monetary policy easing is expected, albeit at a variable pace among jurisdictions. However, the descent will be slower than the rise, with rates settling at higher levels than seen during the substantial stretch of cheap money after the global financial crisis.

S&P Global Ratings forecasts a decline in defaults, albeit at a slower pace than the rise. The lowest-rated borrowers continue to face strains from elevated borrowing costs, lingering effects of higher prices on consumers' purchasing power, and heightened geopolitical risk.

Deepening geopolitical rifts pose the biggest risk to an improving credit landscape, with the Russia-Ukraine war, the Middle East conflict, and domestic polarization in certain markets threatening to disrupt trade and investment flows.

The incoming US administration's policies, including universal tariffs on all goods imported to the US, will have wide-ranging ramifications on a global scale, with a high level of uncertainty attached. The effects of such scenarios would be inflationary in the short-term, prompt a drag on US GDP in the medium-term, and accelerate the diversification of supply chains over the long-term.

A 25% across-the-board tariff on all Chinese goods and sharply higher levies on neighboring Canada and Mexico are also possible. The EU had a trade surplus with the US of $170 billion in goods in 2023.