Why world’s economic powers could find 2025 a year of great struggle

China and its rival superpowers face tough years ahead as decades-old drivers of growth worldwide lose steam, the tailwinds promised by artificial intelligence prove more illusory than real and uncertainties multiply amid geopolitical conflagrations involving nuclear-armed adversaries. Those difficulties add to deep-seated challenges that are kindling societal discontent. The ageing population is one. This global demographic challenge will further slow economies after tepid growth as governments strain to provide healthcare and consumer demand weakens. In China, roughly 28 per cent of its total population will be aged 60 and over by 2040. Globally, that share will be approaching 20 per cent and growing. Longevity and low birth rates are why. Nations will continue moving away from multilateral institutions to embrace bilateral and regional transactions. In doing so, they will replicate the economic nationalism spearheaded by US president-elect Donald Trump. In trade wars, more is lost than won. The investment bank Goldman Sachs forecasts that an increase of 20 percentage points in the effective tariff rate imposed by the incoming Trump administration on Chinese goods will cut China’s real gross domestic product by 0.7 percentage points in 2025. Is there a game of chicken ahead? Will retaliation follow Trump’s first moves on trade? Will Beijing’s stimulus offset the impact of US tariffs and stanch emerging public unrest? These questions will hound the year ahead. Sovereign debt will reach new highs. The consequences will overtake central banks’ actions as the determinant of interest rates. According to Statista, China’s national debt is projected to increase by US$10.6 trillion between 2024 and 2029, reaching a total of US$27.2 trillion. Global public debt is likely to exceed US$100 trillion, or about 93 per cent of global GDP by year-end. It could approach 100 per cent of GDP by 2030, according to the International Monetary Fund. Servicing the debt means slashing social programmes and job-creating investments, more factors that will undermine long-term growth. Developing and emerging-market countries will suffer the most. Their plight could push them more deeply into Beijing’s embrace. Less apparent are trends that will secure a solid footing next year and beyond. Perhaps the most transformative for China and the global economy is the emergence of a flat US equities market cycle which could outlast the decade ahead after the current bull market ends. Since 1900, there have been four such cycles, ranging in length from 12 to 24 years. A fifth is on the starting block. Goldman Sachs and the mutual fund provider Vanguard forecast paltry 3 per cent annual yields for US equities next year. Nobel laureate Robert J. Shiller predicts similarly modest returns. Berkshire Hathaway recently moved more of its capital into what is now a record cash pile. Equity valuations have reached record levels seemingly overnight. The chipmaker Nvidia has traded at more than 50 times earnings during the past 12 months. The combined market capitalisation of the “Magnificent Seven” tech stocks is estimated to be around US$16 trillion, nearly 35 per cent of the S&P 500’s total market value. Investors are blind with euphoria that inflation and interest rates will continue to decline, but there are signs that the reverse is under way. Sustaining hypergrowth becomes harder for large companies because size itself becomes an insurmountable impediment to creating new value. Mature companies’ saturation of markets leaves little room for adding new customers. Maintaining dominance in market share drains ever-increasing amounts of capital. Products and services become commoditised as competition intensifies. Profit margins plummet. Like supertankers, massive companies are slow to pivot to emerging opportunities. A flat equity cycle has profound implications for China and the global economy. Despite efforts to decouple the United States and China, both economies remain highly interdependent on each other. Risk-averse investors will shift to fixed-income securities. Companies will be forced to shelve plans to raise capital. Without strong growth in foreign direct investment in China, Beijing will be hamstrung. Luxury goods conglomerates will suffer given that Chinese consumers are estimated to account for about 22 to 24 per cent of the world’s total retail sales of high-end products. AI is seen as the new gold rush, with the number of AI apps forecast to increase by three to five times in the next 12 to 24 months. However, keeping up with pace of developments to remain competitive requires ever-increasing amounts of capital with diminishing returns. The improvements promised by AI look to be more incremental than transformative, and the public’s soaring expectations have come in spite of deliverables such as ChatGPT responses being largely pedestrian. Potentially more revolutionary is the evolution of computing itself as it becomes increasingly spatial, specifically immersive realities. We will see profound changes in the evolving relationships between technologies and users. The nature and power of computing will determine AI’s future. Meanwhile, quantum computing has yet to achieve the breakthroughs that move it from the lab into the mainstream. Next year we could see more glints of hope. The more our devices are connected to networks, the larger the attack surface for cybercriminals. AI has democratised hacking by enabling even low-level attackers to generate cyberattacks that are harder to detect. Society, national security and public safety are in the crosshairs. Google maintains that “Russia, China, Iran and North Korea will remain active, engaging in espionage operations, cybercrime and information operations aligned with their geopolitical interests”. Investments by companies and governments will escalate, cybersecurity vendors expect in forecasting 2025 as an inflection point. For the year ahead, assumptions that governed the past few years will be supplanted by new ones, some enduring, others sporadic flare-ups.

Why world’s economic powers could find 2025 a year of great struggle

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Assumptions about reliable sources of growth and the promise of AI must be questioned if countries hope to keep pace in 2025

Assumptions about reliable sources of growth and the promise of AI must be questioned if countries hope to keep pace in 2025