Global Economic Forecast Full of Challenges – WEF

The  World Economic Forum (WEF) released its Chief Economists Outlook report for May 2025 today, and paints a complex picture of the global economy, characterized by heightened volatility, trade policy uncertainties, as well as the transformative potential of artificial intelligence (AI).

Based on a survey of 38 chief economists conducted from April 3-17, 2025, the report highlights a unanimous view that global economic prospects are weakening, driven by geopolitical tensions, economic nationalism, and significant policy shifts, particularly in the United States.

Global Outlook Challenging

The global economic outlook has deteriorated since early 2025, with trade policy changes in the U.S. creating widespread uncertainty. On April 2, the U.S. announced substantial tariff increases, including a 10% baseline on global goods and up to 145% on Chinese imports, triggering financial market turbulence and fears of a global trade war.

Although most tariffs have been paused for 90 days, and U.S.-China bilateral tariffs were reduced by 115 percentage points on May 12, uncertainty still persists, with trade-related concerns at their highest since 1960.

The survey reveals that 79% of economists view these changes as part of a long-term structural shift, up from 61% in November 2024. Higher tariffs are expected to fuel inflation (92% are in agreement) and suppress global trade volumes (96% in agreement), with 53% of analysts anticipating economic damage primarily to the U.S. and targeted countries, and 32% foreseeing broader global impacts.

US and EU Headwinds seem Likely

Regionally, the U.S. faces a grim outlook, with 77% of economists expecting weak or very weak growth for 2025, a sharp decline from earlier optimism. Inflation expectations have surged to 7.3% for the year ahead, with 76% anticipating a weakening dollar.

Despite this, the U.S. labour market remains resilient, and foreign direct investment is booming, particularly in semiconductors.

In Europe, growth is expected to remain subdued (50% predict weak growth), but expansionary fiscal policies, notably Germany’s relaxation of debt constraints, and continued monetary easing by the European Central Bank (ECB) offer hope for improvement. In China, economists are divided on whether the 5% GDP growth target is achievable, with 69% expecting moderate growth and 20% predicting weak growth, despite looser fiscal and monetary policies.

AI Presenting Positive Possibilities and Job Losses

Amid these challenges, AI emerges as both an opportunity and a risk. While only 45% of economists expect AI to be commercially disruptive in 2025, 78% believe it could add up to five percentage points to global GDP over the next decade, driven by innovation and augmentation.

 However, concerns include potential job losses (47% expect net losses vs. 19% foreseeing gains) and risks such as disinformation (53%), market concentration (47%), and business model disruption (44%).

Governments are encouraged to support investment in AI infrastructure (89% deem it important), foster adoption across industries (86%), and prioritize upskilling (75%) and talent mobility (80%). Businesses must adapt processes (95%), reskill workers (91%), and improve data infrastructure (85%) to harness AI’s potential.

Agility Essential

The report highlights the need for agility in navigating economic volatility and technological transformation.

Political polarization (95%) and economic nationalism (94%) are seen as driving suboptimal decision-making, with 98% of analysts anticipating accelerated geoeconomic fragmentation.

As businesses and governments adapt to tariff exposure and AI advancements, resilience will depend on diversifying supply chains, enhancing organizational agility, and aligning innovation with economic realities.

Despite short-term relief from tariff pauses, the outlook remains cautious, with long-term risks from policy uncertainty and geopolitical shifts threatening global economic stability.