Global economy set to weaken amid rising uncertainty, WEF economists warn

Arabian Business

a day ago

Chief economists from leading global institutions have unanimously warned that worldwide economic prospects are set to deteriorate considerably for the remainder of 2025, amid 'extraordinary' levels of uncertainty driven by geopolitical tensions and policy volatility, according to a World Economic Forum report released on Thursday.
The May 2025 Chief Economists Outlook, based on a survey conducted in early April among top economists, revealed that 82 per cent characterised current uncertainty levels as 'very high' – with nearly half expecting these elevated levels to persist or increase further over the next year.
'The May 2025 edition of the Chief Economists Outlook is published at a time of extraordinary volatility and uncertainty,' the WEF report stated. 'Since the beginning of the year, the global economic outlook has darkened.'
Trade policy has emerged as the central driver of economic turbulence, with 97 per cent of surveyed economists identifying it as the area subject to the highest level of uncertainty globally, followed by monetary policy (49 per cent) and fiscal policy (35 per cent).
A significant shift in perspective occurred since the previous survey in November 2024, with 79 per cent of chief economists now viewing recent changes to U.S. policy as part of a long-term structural shift rather than a short-term disruption, up from 61 per cent previously.
'Trade-related uncertainty in the past three months has been higher than at any time since records began in 1960,' the report stated, noting that April 2025 levels exceeded even those seen during the COVID-19 pandemic.
Among the key concerns highlighted was the impact of rising tariffs, with 77 per cent of respondents expecting higher inflation and 89 per cent anticipating stagnation or decline in global trade volumes for the remainder of 2025.
The regional outlook showed marked divergences, with the US economic trajectory showing the most pronounced deterioration. Nearly four out of five chief economists anticipate weak (69 per cent) or very weak (8 per cent) growth for the U.S. economy for the remainder of the year, a significant downgrade from previous expectations of moderate to strong growth.
'According to early official estimates, in the first quarter, real GDP decreased at an annual rate of 0.3 per cent,' the report noted about the U.S. economy.
European prospects showed modest signs of improvement, although from a weak base after years of lacklustre growth. Half of the economists still expect growth to remain weak, but increasing fiscal flexibility, particularly in Germany, was cited as a potential driver for broader European growth.
In China, while 69 per cent expect moderate growth, economists were split on whether the country would reach its 5 per cent GDP growth target for 2025, with the IMF having recently revised its forecast downward to 4 per cent.
Defence spending emerged as a significant economic factor, reflecting growing geopolitical concerns. The survey found that most chief economists expect increased public borrowing (86 per cent) to finance higher military expenditure, while many also anticipate cuts to other public investment (56 per cent) and services (47 per cent).
'Shifts in the global security architecture have caused the steepest year-on-year rise in global military spending since at least the end of the Cold War,' the report said.
Despite these challenges, artificial intelligence offers a potential bright spot. While only 45 per cent of chief economists expect AI to become commercially disruptive this year, a significant proportion (46 per cent) anticipate it will add up to five percentage points to global GDP over the next decade, with another 35 per cent expecting gains of 5-10 percentage points.
The labour market impact of AI remains uncertain, with 47 per cent of economists forecasting net job losses over the next decade, compared to 19 per cent who predict net job gains.
In response to these complex challenges, businesses are adapting rapidly. All surveyed economists (100 per cent) expect companies to reorganise sourcing and logistics to reduce exposure to tariffs or export controls, while 87 per cent anticipate businesses will delay strategic decisions and investments due to heightened uncertainty.
'At a time of profound disruption, organizations can position themselves for resilience and expansion by aligning technological innovation with a clear understanding of the broader economic landscape,' the report concluded.
The survey, conducted between April 3-17, captured economists' views during a period of particularly acute trade uncertainty before several major powers announced temporary pauses to planned tariff increases in May.