The world in 2025 may not be much different from 2024 except if many of the promises made by President Donald Trump are kept. Those may well cause a global disruption. 2025 may be the year of enhanced Artificial Intelligence with China joining the fray. Climate Change is likely to continue to plague us. This is a commentary, and comments are welcome by email to: info@eaa.co.ke
WHAT TO EXPECT IN 2025
2024: a look back
2024 was a year of elections with over 60 countries going to the polls – which according to Britannica – was 50% of the world’s population! It was a mixed year on this front with landslide defeats of the incumbents in the US and UK, coalitions taking over large majorities in India and South Africa, and a mixture of the two in countries such as Taiwan and France. In essence a considerable amount of change in global geo-politics with new leaders who will be expected to deliver, which may not be as easy as it sounds.
One thing that has come out of the various elections is a world that appears to be moving away from globalisation – although this was perhaps heralded by the Covid-19 pandemic – to a more inward-looking perspective. President Donald Trump made what would seem a triumphant return to lead the USA, promptly went after undocumented immigrants and threatened significant tariff rises for imported goods. All these, coupled with his move and intent to make Canada the 51st State of the US and to purchase Greenland from Denmark – both of which are probably long shots – one can see the inward-looking mentality coming to the fore. Mr Trump was convicted on 34 counts of falsifying business records but since he won the election before sentencing, he remains a free man. He holds the record of being the first US President to be convicted of a crime! Incidentally, he also survived an assassination attempt in July whilst on the campaign trail. Meanwhile, Mexico had its first female President, Claudia Sheinbaum Pardo, sworn in.
One could argue that 2024 was the year of the youth, with Gen Z making their voices heard in several countries including Kenya and Bangladesh, where the leader was ousted. The infamous Bashar al-Assad was ousted as leader of Syria, although this was probably not so much because of the youth.
The Russia-Ukraine conflict continued with no clear end in sight, although President Trump has declared he will end it. The Israel-Hamas war also continued although President Trump was apparently able to broker the release of hostages here. Iran and Hezbollah also joined the fray which was a major concern globally. Sudan remains a hotbed of violence to which there seems to be no solution in sight. The world has probably not been so close to a nuclear conflict since the Bay of Pigs in 1961.
Natural disasters, whether climate change related or not, intensified and many parts of the world saw extreme weather patterns that disrupted many aspects of daily life. Undoubtedly, the world will see more of these in 2025.
Will 2025 simply be an extension of 2024?
The recently concluded World Economic Forum (WEF) in Davos was pessimistic about what is in store in 2025. Perhaps this is because there seems to be no light in the end of the tunnel with the numerous conflicts that are taking place around the world and maybe because of the more inward-looking stance that most of the world started taking and will no doubt continue to do so.
Indeed, the WEF in their Insights Report points out that much of what we witnessed in 2024 will be around in 2025 as well – conflicts, impact of Climate Change, societal and political polarisation and technological advancements, which while a good thing, has led to more of what is commonly referred to as fake news. The annual survey they conduct reflects the same, with 52% of respondents anticipating “an unsettled global outlook over the short term”. But this increased to 62% when they were asked about a longer term – 10 years’ time horizon, which is very similar to a year ago. The text box (see above) lists the top ten risks that the respondents came up with, showing negligible change from 2024.
Inward-looking trend
The inward-looking trend could well spell disaster for the global economy. If President Trump proceeds with his plan to place higher tariffs on imports, what will the impact be on the US, and indeed, the global economy? Well, there is a precedent – the Smoot Hawley Tariff Act which was passed into law in the US on 17th June 1930 as protectionist measure following the 1929 stock market crash. Tariffs were raised by 20% initially on agricultural produce but eventually on a broader base of goods. The impact was a tit for tat raise of tariffs by many countries which resulted in a marked drop in global trade. There is no reason to believe that 100 years later, the effect of an increase in tariffs by the US would not have the same impact. Incidentally, President Trump has suggested imposing tariffs of 100% on semi-conductors from Taiwan!
Could President Trump achieve what he says he wants to do? According to the Economist’s, The World Ahead 2025, it is unlikely that he could introduce tariffs as draconian as he has suggested. The passing of such laws cannot simply be carried out by Executive Orders but tariff hikes could appear as part of other laws that he wants to introduce which will include an extension of his 2017 tax cuts and reversal of some of the previous regime’s environmental subsidies. As the Economist points out, “investors seem to be shrugging off the potential threat to growth that drastic tariffs would pose”. Which is probably a relief!
Perhaps the bigger risk for the US, and much of the developed world economies will be the push to deport migrants. Major countries in the developed world – US, UK, France and Germany (collapse of their coalition) to mention a few – saw a landslide change in their elections in 2024. One significant reason for this was the level of illegal migrants in their countries. But what will be the effect of this action? In someways, the UK saw it post Brexit and is perhaps still feeling the effect although here the migrants may not have necessarily been illegal.
According to the Economist, using findings of the Pearson Institute of International Economics, “the economic effects will be grim”. The magazine estimates that deportation by the US of 1.3 million migrants (less than 20% of the total number) would see the US economy “1.2% smaller than expected by 2028”. If all migrants were deported, that number would rise to 7.4%.
Even worse, a combination of deportations and tariff increases, would see the economy drop by as much as 10% by 2028, and even more worrying, inflation rising to between 13% to 23% higher. That said the deportation drive might not be as easy as all that, even though it has already started. At the end of the day, most countries that see a plethora of asylum seekers and illegal migrants are likely to tighten up in 2025 – after all, that is what the voters wanted!
While the focus by President Trump is illegal migration, there are people in his close team who also want to curb all migration which would apply to skilled workers as well. The Economist points out that: “by one estimate immigrants are 14% of America’s population but generate 36% of the innovation”! Perhaps not a smart move after all.
Artificial Intelligence (AI)
China has never managed to master the chip market which has in the past been a detriment to technological development in the country. But that may well be a thing of the past, with the recent launch on 20th January by DeepSeek (a start-up in 2023) of its generative AI model, which could now compete against Chat GPT developed by Microsoft and Nvidia. It seems clear that having less access to the chips made the Chinese developers more innovative in the development of the algorithms. “The fact that it comes out of China shows that being efficient with your resources matters more than compute scale alone”, says François Chollet, an AI researcher in Seattle, Washington, reports Nature, a journal focusing on scientific and technology matters.
Perhaps the most surprising aspect of this launch was that it cost a fraction of what development in Western economies cost – a mere USD 5.5 million. A number of US listed companies in this area saw their stock price plummet on 27th January 2025 as result of the launch. This is possibly going to be the reality of 2025 as we see more innovative developments from China.
The launch of DeepSeek’s model is likely to spur innovation in the Artificial Intelligence space all over the world during 2025. Watch this space!
Climate Change
The debate continues to rage as to whether Climate Change is for real or whether we are simply seeing a cyclical change in weather patterns. Both 2023 and 2024 are on record as being the hottest in history, and 2025 may not be any different, although there is a school of thought that it will be cooler. Nonetheless, climate related disasters are likely to prevail and impact many lives on the planet, whatever the cause is.
While many countries have, and no doubt will continue to, achieve emission reductions, the impact will likely take decades to see us move away from extreme weather patterns and the related havoc, assuming they are the cause. The reality is that a handful of countries taking action will not be sufficient. The world will need a cumulative drive to reduce emissions, which is probably not on the cards for 2025 or indeed the foreseeable future.
What may be evident in 2025 though is innovation at ways to reduce the impact of Climate Change such as solar geoengineering which is basically reflecting incoming sun rays back into space to reduce the effects of warming.
Global economic outlook
Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development – with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters”. World Bank Economic Outlook 2025
The World Bank’s annual economic outlook suggests that all is not rosy and while there will be growth, it will not be at levels that it’s supposed to be at. While 60% of global growth came from emerging markets and developing economies since 2000 (which is expected to continue into 2025), the pace of growth will not ensure the graduation to middle income status by 2025 without what the World Bank calls “course corrections”. East Asia and the Pacific will see a slowdown in growth, particularly with China experiencing weak domestic demand. Europe and Central Asia is projected to see decelerations following good increases in 2024.
The good news is that the World Bank projects decent growth in Latin America, the Caribbean, the Middle East and North Africa, South Asia, and Sub-Saharan Africa. This is attributed “robust domestic demand”. That maybe a somewhat optimistic view for Sub-Saharan Africa given that most countries are seeing lower consumer demand. However, growth in that part of the world will certainly be higher that the global average.
But the World Bank adds a cautionary tone saying: “Progress implementing structural reforms in many of these economies has stalled. Globally, protectionist measures and geopolitical fragmentation have risen sharply. High debt burdens, demographic shifts, and the rising costs of climate change weigh on economic prospects. A successful policy approach to accelerate growth and development should focus on boosting investment and productivity, navigating a difficult external environment, and enhancing macroeconomic stability”. These headwinds are certainly impacting the Eastern Africa region.
Closer to home, Sub-Saharan Africa is projected to have growth of 4.1% in 2025 following the easing of inflationary pressures. Excluding Nigeria and South Africa – the two largest economies on the Continent – the projected growth is 5.3%.
Overall outlook
The world in 2025 may not be much different from 2024 except if many of the promises made by President Donald Trump are kept. Those may well cause a global disruption. 2025 may be the year of enhanced Artificial Intelligence with China joining the fray. Climate Change is likely to continue to plague us.
This is a commentary, and comments are welcome by email to: info@eaa.co.ke