Introduction
Resetting the economy sounds appealing… until you see the error message.
The world economy appears to be undergoing a reset, one that unsettles even those with nerves of steel. According to Pierre-Olivier Gourinchas, the Chief Economist at the International Monetary Fund (IMF), the system that governed the last 80 years is giving way to a new era marked by uncertainty, unpredictability, and most importantly, lower growth.
Trade Tensions Fueling the Fire
The implementation of tariffs by the United States has only added fuel to the fire. Not only does it increase product costs, but it also discourages global trade, limits the growth of emerging economies, and worst of all, threatens to reverse the modest progress made in the fight against poverty.
Global Economic Outlook: A Cause for Concern
Recent annual meetings of the World Bank and IMF have confirmed what many feared: global economic prospects are uncertain and point to a concerning deceleration.
- South Asian Economies: Projected growth is expected to drop to 5.8% in 2025, a decrease of 0.4 percentage points from the October projection.
- Latin America and the Caribbean: The region faces an even more complex scenario, with a projected growth of only 2.1% in 2025 and 2.4% in 2026, making it the world’s slowest-growing region.
- Sub-Saharan Africa: Offers a slight positive surprise, with growth estimated at 3.5% in 2025 and potentially accelerating to 4.3% between 2026 and 2027, driven by increased private consumption and investment as inflation decreases and exchange rates stabilize.
- Europe and Central Asia: Will experience a significant slowdown, with an estimated average growth of just 2.5% for the period 2025-2026, affected also by geopolitical tensions and global uncertainty.
- Middle East and North Africa: Growth is calculated at a mere 1.9% for 2024, pressured by internal conflicts and external volatility.
The global economic map is increasingly painted in shades of gray: less growth, more vulnerability, and a growing risk that millions will face even greater hardships in getting ahead.
Geopolitical Factors and Market Volatility
This economic restructuring unfolds in a precarious context. Tensions in the Middle East, Russia’s prolonged invasion of Ukraine, and the volatility of basic goods markets are factors that, according to the World Bank, could push the global economy into “uncharted territory.”
The Inevitable Consequences
If this new scheme persists, the future does not look promising: less global growth, fewer development opportunities, and consequently, higher levels of inequality. And as we know, inequality does not ask for permission nor offers explanations; it simply takes root.
The Need for Balanced Economic Strategies
In this scenario, it’s crucial to acknowledge that while the market is an excellent resource allocation tool, it isn’t infallible. An imbalance between the ‘invisible hand’ and state intervention has polarized global economic decisions, deepening social gaps.
Until we understand that growth should be a means to development, not an end in itself, no tariff or protectionist policy will shield us from collapse.
Key Questions and Answers
- What is causing concern in the global economy? The world economy is on the brink of a reset, marked by uncertainty, unpredictability, and lower growth due to factors like trade tensions, geopolitical issues, and market volatility.
- How are different regions expected to fare? South Asian economies will see a decrease in growth, Latin America and the Caribbean face an even slower trajectory, Sub-Saharan Africa offers a slight positive surprise, Europe and Central Asia will experience significant slowdowns, while the Middle East and North Africa project minimal growth.
- What are the implications of these economic changes? The consequences include less global growth, fewer development opportunities, and higher inequality levels. These changes could exacerbate hardships for millions trying to improve their circumstances.
