State of the World 2025 - 20th January 2025
Despite growing geopolitical tensions, 2025 is poised to be a favourable year for the
‘haves,’ particularly in the United States. While it will be rhetorically noisy, there will
be a sense of stability, with major powers asserting control in their areas of influence.
However, this will be fleeting. Rising inflation in the US and intensifying geopolitical
friction are setting the stage for heightened volatility and vulnerability that will ripple
through all sectors of society in subsequent years.
Businesses have a unique opportunity to capitalise on the short-term opportunities
of this moment. At the same time, leaders must prepare for the challenges ahead by
embedding resilience and adaptability into their strategies.
A Framework for 2025: Three Layers of Global Dynamics
My analysis rests on three interconnected layers of global dynamics: the fundamental
structural trends that act as the skeleton, systemic factors akin to the vascular
system, and the localised events that form the visible surface.
Structural Trends
This year will mark a geopolitical recession, with the United States abandoning its
traditional role as a counterweight to those who question the legitimacy of
multilateral institutions. As global norms and standards erode, multinational
companies will face rising costs, and businesses will increasingly need to provide for
their own security (as they did, for example, in many maritime pinch-points such as
the Singapore Straits in the early 2020s).
The European Union will hold together, its cohesion bolstered by shared concerns
over Russia and the Middle East, while NATO, under Mark Rutte’s leadership, will
maintain relevant. Yet political tensions within both institutions will deepen. The
authoritarian axis of China, Russia, North Korea, and Iran will persist, though
weakened by internal power imbalances and diverging interests.
Intermediate powers like Indonesia, Brazil, and Turkey, which gained influence in
recent years, will see their momentum reverse as the US and China entrench
authoritarian models of governance. This shift will exacerbate inequality, storing up
tensions for the future.
For now, the US-China relationship will remain largely stable, sustaining current
supply chains. But this stability is fragile. China’s economic vulnerabilities, including
high levels of local government debt, the real estate bubble and low domestic
spending, coupled with the US’s increasingly confrontational politics, will drive long-
term tensions. Nations and corporations alike will face hard choices to come as they
navigate these divides; planning for this will be key.
Meanwhile, the private sector’s influence will continue to grow, particularly in the
US, where figures like Elon Musk exemplify the trend of business leaders shaping
policy. This rising influence comes with heightened societal expectations that will
play out in the longer-term. Even as the pendulum swings against ‘wokism’ this year,
the demand for businesses to play a role in addressing public challenges will only
grow.
Systemic Factors
Despite inflationary pressures, the US economy will remain the primary driver of
global growth in 2025. Strategic sectors like AI, technology, and crypto will benefit
from a deregulated environment, pressuring Europe to loosen its regulatory
frameworks as well (such as the recent AI Act). These shifts will create opportunities,
but also risks for firms operating across jurisdictions with differing regulatory
approaches.
China’s structural vulnerabilities will drive it to flood global markets with key
technologies such as electric vehicles and solar equipment, putting further pressure
on Europe and Asian allies caught between US demands for greater spending on
defence and US goods and services, and Chinese exports. Germany and France,
struggling politically in the first half of the year, are unlikely to provide much-needed
economic momentum.
Trade tensions will rise throughout Trump’s term, with tariffs on China increasing
but falling short of his threatened 60%. Export controls will tighten, and Chinese
entities will face more exclusion measures. Xi Jinping’s narrowing options will
ensure that Beijing responds, escalating tensions over time.
Supply chains will once again prioritise resilience over efficiency, echoing the shifts
seen during the Covid pandemic. Firms in strategic sectors in particular, such as
semiconductors and pharmaceuticals, will need to continue efforts to diversify
suppliers to reduce geopolitical risk.
January has already shown signs of a significant shift, with financial institutions
beginning to retreat from their environmental commitments, including withdrawals
from the Net Zero Asset Managers and Net-Zero Banking Alliance. This marks a
broader decline in action on all ESG goals in the coming years. The pace of this
retreat will vary globally, with Europe moving more cautiously than the US.
Despite Trump’s threats to dismantle the IRA (Inflation Reduction Act), investment
in green technologies will persist worldwide. Falling costs make it clear that green
energy represents the future. While there are a number of potentially high-impact
events that could occur (such as Iran or Israel targeting opponents’ oil facilities), in
their absence prices will remain mostly stable (even if a cease-fire plays out between
Russia and Ukraine).
Localised Events
In the US, Trump’s reliance on a circle of ‘yes men’ may create an illusion of short-
term efficiency, but it will inevitably lead to inefficiencies as grit accumulates in the
system. His impatience is likely to result in an overreliance on executive orders,
fuelling long-term uncertainty and volatility for businesses. This decision-making
style, lacking rigorous challenge or red-teaming, increases the risk of poor policy
choices. At the same time, America’s focus on internal political battles—exacerbated
by an intelligence leadership preoccupied with targeting Trump’s domestic
opponents—will leave the country more vulnerable to external threats. This
distraction creates space for foreign malign actors to exploit, raising the likelihood of
low-probability, high-impact events.
The Middle East will remain tense, with underlying tensions continuing to simmer.
While countries like Saudi Arabia and the UAE prioritise economic growth (thus
damping down escalatory tensions), Iran’s responses to perceived provocations from
Israel or the US could lead to disruption, particularly in the energy sector. There will
be winners (eg: Saudi, UAE, Israel) and losers (eg: Palestine, Iran).
Ceasefire negotiations between Russia and Ukraine are likely, but even if successful
tensions with Europe will remain high. Russia’s hybrid warfare tactics will continue
to target Western institutions and private sector actors.
Humanitarian disasters and civil unrest will continue to unfold in places like Sudan
and Venezuela, with their repercussions—migration, terrorism, and the spread of
disease—spilling across borders. However, with global norms eroding and
international powers focused on their own immediate interests, intervention in these
crises is increasingly unlikely. This growing indifference means such conflicts will be
left to escalate unchecked. It is worth remembering how quickly these situations can
evolve, as seen in Tunisia in 2011 or Syria last year.
Extreme weather events will only become more frequent, requiring businesses to
integrate volatility into their operating models. Tools like insurance and diversified
supply chains will be essential.
Preparing for What Comes Next
There is significant potential for international businesses to thrive in 2025, as the
regulatory environment loosens and US economic growth accelerates. However,
leaders must look beyond this year. The volatility and insecurity on the horizon
demand proactive resilience-building and regular reassessment of strategies.
Businesses that succeed will integrate contextual thinking into decision-making at
every level, iterating throughout the year rather than waiting for an annual review.
This assessment reflects a Western perspective. The dynamics and priorities would
look very different from Singapore, Brazil, or Nigeria. Wherever you sit, the critical
question is: are you ready to navigate the challenges ahead?
If these insights resonate and you’d like to explore what they mean for your
organisation—or your leadership team—I’d be delighted to discuss further. Reach out
to start the conversation.
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