The outlook for the global economy has deteriorated significantly compared to previous forecasts for 2025. Tariff increases and trade policy uncertainty are expected to strain supply chains, raise production costs, and prompt businesses to postpone or reduce investments. This is stated in the information on the global economic situation and prospects published in early June 2025 by the United Nations Department of Economic and Social Affairs (DESA-UN). Global economic growth is projected to slow to 2.4% in 2025, compared with 2.9% in 2024. At the same time, the growth rate of developed economies will be 1.3% in 2025, compared with 1.8% in 2024, reflecting weakening private investment, trade tensions and ongoing political uncertainty.
DESA-UN predicts an economic downturn in the North American region. Growth in the United States in 2025 will be only 1.6%, which is significantly lower than the 2.8% figure in 2024. In Canada, economic growth is also forecast to decline to 1.6%, which is a decrease from the January forecast of 1.8%. This slowdown is attributed to weakening domestic demand, as increased tariffs raise prices for durable consumer goods, curbing consumption. Tariff incentives under the Agreement between the United States, Mexico and Canada are expected to mitigate some of the negative effects.
The alarming economy of the European Union, which, according to DESA-UN, will grow by only 1.0% in 2025. Major challenges include rising trade barriers, increased political uncertainty, and slowing growth in the United States and China. Most of all, according to forecasts, the prospects have deteriorated for countries that depend on production and have strong trade ties with the United States, such as Germany. Service-oriented countries such as Croatia, Greece, Portugal, and Spain are predicted to be more resilient, driven by high consumer spending and a sustained recovery in the tourism and hospitality industries.
The forecasts of DESA-UN regarding economic growth in the CIS are particularly alarming, where it is expected to slow down sharply - from 4.5% in 2024 to 2.5% in 2025. The Russian economy will grow by only 1.5% due to labor shortages and tight monetary policy. Lower oil and gas prices further worsen the financial prospects of energy exporting countries in the region. Some CIS countries, which are heavily dependent on intermediary trade with Russia, are also facing declining growth prospects.
In the developed countries of the Asia-Pacific region, global trade tensions and slowing external demand worsen economic growth prospects for 2025. Japan’s economy is projected to grow by 0.7%, according to DESA-UN forecasts, as lower consumption continues to put pressure on the economy. The Republic of Korea is experiencing a slow recovery in domestic demand, despite ongoing efforts to ease monetary policy.
According to the forecasts of DESA-UN, the situation in world trade is alarming, which will slow down sharply: trade volume growth will fall to 1.6% in 2025, compared with 3.3% in 2024. Falling prices for key commodities, including oil, industrial metals, and minerals, reflect declining global demand, which creates additional challenges for resource-dependent economies. Trade in services remains resilient, helped by the rapid spread of digital services, which currently account for 14% of global exports. Industries such as education, finance, and healthcare have benefited from the widespread adoption of artificial intelligence.
It is also worrying that at the beginning of 2025, three times as many central banks lowered interest rates. According to DESA-UN, the European Central Bank lowered interest rates amid slowing inflation and stagnating economic growth. Many central banks in developing countries are gradually easing monetary policy as inflation declines. Brazil, however, has raised interest rates to combat persistent inflation.
According to the forecasts of DESA-UN, the fiscal policy of many countries is becoming more and more limited, although the scope of its application varies greatly. The United States has a significant budget deficit, which is projected to exceed 6% of GDP in 2025. Several EU member states are using relaxed budget rules to cover higher defense spending, while China is expanding fiscal incentives to support economic growth. In contrast, most developing countries face high levels of debt and limited fiscal capacity. Government interest payments have increased significantly in most developing countries. The ongoing trade conflict, growing uncertainty and deteriorating global economic conditions are likely to exacerbate the debt problems of developing countries, further limiting their ability to boost economic growth.
Summing up, it should be noted that the weakening of the global economy threatens progress and raises questions. What will these processes lead to in the global economy: a recession or is it the eve of an economic crisis? As we see, slowing growth and declining trade in goods are hindering poverty reduction, increasing inequality, and limiting resources for sustainable development initiatives.
* The Institute for Advanced International Studies (IAIS) does not take institutional positions on any issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of the IAIS.
