As 2024 draws to a close, its seismic political and economic events will continue to shape the world well into 2025 and beyond. From escalating conflicts in the Middle East to major national elections and economic challenges, the year has left a profound mark. The reelection of former US President Donald Trump, in particular, is expected to have far-reaching economic consequences due to his proposed tariffs and policies.
The Economic Impact of Trump’s Tariff Plans
Trump’s return to the White House has created significant uncertainty in global markets, with his proposed tariffs being a focal point. During his campaign, Trump suggested imposing a 10-20% levy on all imported goods, a 60% tariff on Chinese imports, and additional taxes on goods from Mexico and Canada.
Christine Lagarde, president of the European Central Bank, expressed concern about the potential fallout:
“I continue to think that restrictions on trade, protectionist measures, are not conducive to growth.”
Economic forecasts predict these tariffs could harm both the US and global economies. Goldman Sachs projects a 10% tariff on all imports could reduce US GDP, peaking in 2026, due to higher consumer prices and reduced spending. Consultancy Capital Economics warned of a possible global trade war, which could knock 2-3% off global GDP, erasing most growth.
Europe Faces Political Chaos
In Europe, political instability is adding to economic concerns. French President Emmanuel Macron’s government collapsed after a snap parliamentary election this summer, leading to a minority government that struggled to govern. ING noted the implications:
“Political chaos will weigh on growth in France next year.”
Germany is also bracing for political uncertainty with a snap election in February 2025. The outcome will determine whether the country implements reforms to boost growth or continues to face stagnation. Germany’s industrial sector, heavily reliant on exports, is particularly vulnerable to US tariffs.
Middle East Conflicts and Their Economic Impact
The Middle East experienced dramatic developments this year, including Israel’s wars with Hamas and Hezbollah and the overthrow of Bashar al-Assad in Syria. While these events have geopolitical significance, their immediate economic impact remains limited.
Nathan Sheets, global chief economist at Citi, noted:
“The parameters of the current conflict are not directly jeopardizing the (flow of) oil.”
Oil prices, which spiked after the October 7 Hamas attack on Israel, have since declined to levels seen in mid-2023. However, uncertainty surrounding the region continues to loom, particularly regarding the economic consequences of Russia’s war in Ukraine.
Preparing for 2025 Amid Uncertainty
Economists agree that uncertainty will dominate the global outlook in 2025. The potential for a global trade war, political instability in key economies, and lingering conflicts could weigh heavily on growth. However, strategic reforms and effective diplomacy could mitigate these challenges and pave the way for recovery.
“An orderly ceasefire in Ukraine may boost business confidence in Europe and lower energy prices,” Citi analysts Christian Schulz and Giada Giani suggested.
The events of 2024 have set the stage for significant economic and political shifts in 2025. From Trump’s trade policies to Europe’s political upheavals and Middle East conflicts, the coming year will be shaped by the aftermath of this transformative year. As the world navigates these uncertainties, the focus will be on fostering stability and growth in an increasingly interconnected global economy.
