London
CNN
—
The sun sets in 2024, but the consequences of its many events will be felt around the world well into next year and beyond.
This year, the war launched by Israel against Hamas in Gaza escalated and spread to Lebanon, where Israel launched a war against Hezbollah until a fragile ceasefire was agreed upon last month. In Syria, rebels finally ousted Bashar al-Assad in a lightning attack this month, and Russia’s war in Ukraine enters its third year.
But it is voters’ choices, in what has been a record year for national elections, that are likely to have the greatest impact on global prosperity in 2025 – most notably the re-election of former US President Donald Trump.
“There is a lot of frustration about how the global economy is going,” said Nathan Sheets, chief global economist at Citi and a former US Treasury undersecretary, pointing to the poor performance of many ruling parties in this 60-plus year. elections.
“The political climate seems more uncertain to me than ever before,” he told CNN.
For many economists, the main source of this uncertainty is Trump’s imminent return to the White House, especially the issue of tariffs.
During the campaign, Trump talked about imposing a 10% to 20% tax. Imposing a tax on all goods imported into the United States and customs duties of at least 60% on Chinese imports. In late November, after his victory over Kamala Harris, he said he wanted to impose a 25% import tax on Mexico and Canada and “an additional 10% tariff, on top of any additional tariffs” on China.
Forecasters have come up with mixed predictions about the damage Trump’s new tariffs could cause to other economies, depending in part on the level of the tariffs. But the damage will be there.
“I still think that restrictions on trade, protectionist measures, are not conducive to growth,” European Central Bank President Christine Lagarde told reporters earlier this month when asked about Trump’s potential tariffs on European imports.
High tariffs may have adverse consequences for the US economy itself, which is the largest in the world. Goldman Sachs sees a big hit to US GDP, which will peak in 2026, from a potential 10% tariff on all imported goods – partly due to higher consumer prices, which would reduce spending by Americans.
The overall impact of higher US tariffs on the global economy will also depend on how affected countries respond – for example, by increasing their tariffs on US imports.
“This could end in a global trade war, which, although it could take many forms, at the extreme could reduce 2 to 3% of global GDP,” consultancy Capital Economics wrote in a recent note. Based on current trends, a 3% decline in global output would erase most economic growth.
But businesses don’t like uncertainty, and even if Trump doesn’t impose higher global tariffs, fears that it could hit at least some countries or industries will impact business investment, and thus the economies of America’s trading partners.
This is what analysts at Goldman Sachs and JP Morgan believe. As a result, both banks revised their forecasts for European growth next year.
“The impact is most direct in China, which will almost certainly face sharp tariff increases,” Goldman Sachs analysts wrote last month, lowering their 2025 forecasts for the world’s second-largest economy.
Another way Trump’s new import taxes could hurt the global economy is by contributing to a new wave of inflation in the United States and elsewhere. US prices will also rise faster if, as he promised during his campaign, he cuts taxes and cracks down on immigration, which could lead to labor shortages and higher wage bills.
Chaos and stagnation
The United States is not the only country that has witnessed seismic political change this year. French President Emmanuel Macron called early parliamentary elections in the summer, leading to the collapse of a minority government earlier this month. Likewise, the ruling coalition in Germany, the world’s third-largest economy, collapsed last month, paving the way for early elections in February 2025.
The new government in Paris, unveiled on Monday, is likely to have difficulties governing as its short-lived predecessor did, with a parliament in which no faction has a clear majority. This would keep the political environment unstable and limit business investment and consumer spending.
European bank ING said in a recent report that “political chaos will weigh on growth” in France next year. He added: “The constant threat of blaming any government that is formed, the impossibility of passing a budget to control public finances, and the possibility of more elections, simply fuels the state of uncertainty.”
The uncertainty is set to continue until at least the middle of next year, which is the earliest date for another parliamentary election, according to the French constitution.
Germany’s fortunes in the coming years will depend largely on the results of the next elections. The key question here is whether the new government will borrow more to invest and implement structural reforms to deliver a much-needed growth boost.
“If not, recession will be the new normal,” ING said.
In addition, any new US tariffs on imported goods would be of great importance to Germany, given its large industrial sector and America’s role as Germany’s second most important industrial sector. Business partnerBehind only China.
Global growth could also be affected by what happens in the oil-rich Middle East, although economists are less concerned at this stage about the negative consequences of hostilities there in the near term.
“The parameters of the current conflict do not directly jeopardize the oil (flow),” Citi’s Sheets told CNN. He said it could spread, but “the major countries in the Middle East don’t want a regional conflict – if this was something they were open to, we would have seen it already.”
Oil prices have fallen from the peak they reached shortly after the Hamas attack on Israel on October 7, 2023, and now stand at levels seen in June last year.
As for neighboring Syria, even before the devastating civil war erupted in 2011, the country did not account for a large share of global oil production, and the fighting destroyed much of its oil infrastructure, Capital Economics noted. “Developments in Syria will have very little impact on the global economy,” the consulting firm said the day after Assad’s ouster.
Russia’s war in Ukraine has already left its mark on the global economy, keeping natural gas prices in Europe much higher than they used to be. Trump has said he wants to end the war quickly, and what that solution looks like will determine its economic consequences.
While an “organized ceasefire” could boost business confidence in Europe and lower energy prices, Citi analysts Christian Schultz and Giada Gianni said a “disorderly collapse” could lead to larger refugee flows into the region and “spread conflict with Russia.” “.
