Intensifying Trumpism, Deepening Growth Divergence, Global Economic Growth Down to 3.0% in 2025

Korea Institute for International Economic Policy (KIEP) forecasts global economic growth at 3.0% in 2025, slightly lower than the 3.1% growth projected for 2024.
In its ‘World Economic Outlook’ released on Nov. 2024, KIEP predicts Several factors contributed to this downgrade: the potential continuation of protectionist policies under a second Trump administration, including possible tariff hikes, and the persistent restrictive nature of interest rates, despite cuts by major central banks. These factors, combined with global debt pressures, are expected to weigh heavily on global economic growth.
The 3.0% global growth forecast for 2025 is notably lower than the pre-pandemic five-year average of 3.4% (2015–2019). This divergence is particularly pronounced in China and the Eurozone, where growth rates are forecast to reach 4.1% and 1.3%, respectively, compared to their pre-pandemic averages of 6.7% and 2.0%. However, the United States, India, and the ASEAN-5 are projected to show growth rates of 2.1%, 6.8%, and 4.7%, respectively, close to their pre-pandemic averages, indicating relatively strong performance in these regions. This highlights the growing fragmentation of the global economy post-pandemic and the evolving geopolitical risks that continue to shape the global economic landscape.
KIEP forecasts U.S. economic growth to slow to 2.1% in 2025 from 2.8% in 2024. Strong consumer spending, buoyed by a robust labor market and rising asset prices, will likely support growth. However, the momentum in consumer spending is expected to slow due to restrictive interest rate levels despite anticipated rate cuts. Policy uncertainty under a re-elected President Trump poses risks, particularly from potential tariff hikes, tax reforms, and environmental policy rollbacks. Rapid tax cuts, however, could stimulate growth.
The Eurozone’s economy is expected to grow by 1.3% in 2025 from 0.8% in 2024. Growth will be driven by recovery in private consumption, supported by improved real wages and financial conditions. However, the persistent economic difficulties in Germany, which accounts for nearly 30% of the Eurozone’s economy, coupled with the implementation of fiscal penalties due to excessive deficits, are expected to prevent a strong recovery.
Japan’s economy is forecast to grow by 1.0% in 2025, compared to 0.4% in 2024. Modest recovery is expected from new policies, increased investment in AI and decarbonization, and base effects from weak growth in 2024. Risks include weaker exports as the yen’s depreciation impact fades, slower corporate earnings, and possible new tariffs under the upcoming second Trump administration.
China’s growth is expected to slow to 4.1% in 2025 from 4.8% in 2024. While various stimulus measures have helped stabilize the economy, they have not been sufficient to fully reverse the economic downturn. Additional tariffs or sanctions from the U.S. could mount further pressure on its export-driven growth. If China’s economy slows sharply, it is anticipated that the government will introduce more aggressive stimulus measures to support growth.
India is forecast to maintain robust growth near 7% in 2025, slightly below the estimated 7.1% for 2024. Increased public and private investment and rising domestic consumption under Prime Minister Modi’s policies will continue to drive expansion.
The ASEAN-5 countries are projected to grow by 4.7% in 2025, up from 4.6% in 2024. Growth will be fueled by strong private consumption, foreign investment, recovery in the tourism sector, and infrastructure projects. While protectionist risks, including tariffs, remain, ASEAN’s geopolitical importance should mitigate their impact.
Russia’s growth is expected to slow to 1.7% in 2025 from 3.7% in 2024, constrained by reduced production capacity due to labor shortages. Brazil’s growth is projected to slow to 2.0% in 2025, down from 3.1% in 2024, reflecting the impact of tight monetary policies aimed at controlling inflation and the likelihood of gradual fiscal tightening.
Brazil is expected to stabilize at 2.0% in 2025, as the Lula administration’s policies to improve private sector purchasing power, such as higher minimum wages and support for low-income households, and new industrial policies, are expected to be effective.

KIEP has identified “Intensifying Trumpism, Deepening Growth Divergence” as the defining theme for the global economy in 2025. The trajectory of the global economy and major nations will largely hinge on how and when Trumpism—rooted in the “America First” approach—is implemented. KIEP has also highlighted three major risks that could further downgrade the global economic outlook for 2025. The first is America First Policies and Intensifying Protectionism. The second Trump administration may escalate protectionist measures, such as tariff hikes and trade pressures, targeting not only China but also U.S. allies. These actions could trigger retaliatory measures and trade disputes, disrupting global trade dynamics and weakening economic growth.
President Trump and members of his new administration have already made a tough stance on China a key campaign promise, and a wide range of protectionist measures against key industries are expected to be introduced.
Among the threats of stronger economic pressure on China are revoking China’s most-favored nation status, phasing out imports of essential goods from China, imposing high tariffs of 60% on Chinese imports, and imposing a 20% universal tariff on all foreign imports.
The U.S. is expected to intensify its checks on China, especially in areas related to national security and the race for technological supremacy, such as working to build supply chains that completely exclude China from high-tech sectors.
In addition, trade pressure on allies is expected to increase, and the intensity of Trump’s policies in his second term is expected to be stronger than in his first term.
He has pledged to renegotiate the USMCA, the trade agreement between the US, Mexico, and Canada, and has made clear his intention to crack down on Chinese cars in Mexico, and may seek to renegotiate trade agreements with other countries.
There is a consensus among Democrats and Republicans on restoring jobs in the Rust Belt, implementing measures to protect traditional industries such as steel and aluminum, preventing the outflow of high-tech industries and checking China, and with the Republican majority in both the Senate and House of Representatives, major policies are expected to be implemented faster than in the first term.
While the most likely scenario is that the U.S. will take steps to implement protectionist measures and raise tariffs, it is also possible that China will retaliate with tariffs, the U.S. will raise additional tariffs in response, and a full-blown trade war will ensue, all of which would be devastating to global growth, investment, and trade.
The second is China’s Structural and External Challenges. Domestically, China faces structural issues, including a sluggish real estate market, mounting local government debt, and a shrinking population. Externally, declining foreign direct investment and stiffer U.S. sanctions pose additional threats to China’s growth. If these risks materialize, they could significantly disrupt global trade and investment flows, further straining the global economy.
China’s real estate market has been in a prolonged downturn since mid-2021, with a series of bankruptcies of large real estate companies such as Hengda Group and Country Garden causing market instability.
As the real estate sector accounts for about 30% of GDP, this downturn has led to a slowdown in real estate investment and development, a decline in consumer sentiment, and has weighed heavily on China’s overall economic growth. This has led to local government debt reportedly reaching 76% of GDP by the end of 2022, including debt from local government financing organizations, and increased diversionary lending through shadow banking, amplifying potential risks to the financial system.
In the face of external uncertainties, such as the decline in FDI inflows due to U.S. sanctions and supply chain fragmentation, as well as tensions with Taiwan, the Chinese government has recently announced a series of fiscal policies such as issuing special government bonds and utilizing specialized bonds for local governments, expanding liquidity supply by lowering interest rates, and easing real estate-related regulations and support measures. However, the measures so far are focused on stabilization rather than stimulation and will take time to become concrete and effective policies. If China’s risks materialize while structural reforms are delayed in response to stimulus measures, it could have far-reaching spillover effects on the global economy.
The combination of internal issues and a hit to the trade sector due to public pressure from the U.S. could lead to a sharp decline in growth and a financial system crisis, with spillover effects on the global economy through trade and financial channels.
The third is Financial Market Volatility amid Monetary Policy Shifts. In the U.S., fiscal and trade policies under a new administration—such as tax cuts and tariff increases—may drive inflation expectations higher, potentially slowing the Federal Reserve’s pace of rate cuts. Meanwhile, Japan faces the possibility of additional interest rate hikes due to rising inflation. These monetary policy changes are likely to amplify financial market volatility, increasing debt burdens and the potential for disruptive market adjustments.
As global inflation stabilizes on the downside, monetary policy in major economies is in the process of transitioning from tightening to easing, creating uncertainty.
The US Federal Reserve cut its benchmark rate by 0.5%p in Sept. 2024, raising expectations of further big cuts to come, but showed caution in Nov. with a 0.25p% cut. Opinions within the Fed are divided on the timing and breadth of rate cuts, with strong consumption and employment and rising government debt issuance due to widening fiscal deficits acting as constraints.
The new government’s stimulus package and tax cuts, as well as the potential for higher import prices due to tariffs, are also factors that will force the Fed to choose its path very carefully.
On the other hand, the Bank of Japan’s monetary policy normalization is creating new uncertainties in global financial markets. In March 2024, the Bank of Japan ended eight years of negative interest rates as inflation and wage growth continued to pick up in Japan, leaving the door open for further rate hikes in the future, depending on the direction of inflation and growth.
This move, which is contrary to monetary authorities in the U.S. and other major economies, could lead to a narrowing of the interest rate differential between Japan and other countries, which could increase volatility in Japan’s foreign exchange market and create a sharp shift in global capital flows as yen carry trade funds are liquidated.
While interest rate cuts are underway, real interest rates stripped of inflation are still high, which could exacerbate real debt burdens, and the liquidation of yen carry trade funds could increase financial volatility in emerging economies that are vulnerable to capital inflows and outflows.
Given the stickiness of underlying inflation, interest rates in major economies are currently being cut very cautiously from above-neutral levels. Add to this the potential for a downturn in the economy to worsen the ability of vulnerable households, corporations, and governments to service their debts.
Note that sovereign debt issuance and rising interest rates could lead to large swings in asset markets and major currency values, especially if fiscal expansion begins in 2025 as the 2024 “election year” winds down.

KIEP forecasts for 2025, it is clear that the global economy is entering a year of heightened risk and uncertainty. The potential for further fragmentation and rising geopolitical tensions, particularly under a second Trump administration, is likely to slow global trade growth. Capital flows are expected to increasingly focus on the U.S., intensifying financial market disparities. In this challenging landscape, nations are likely to adopt “every country for itself” strategies, both individually and within their alliances.
For South Korea, a nation deeply reliant on international trade and financial openness, the external environment has grown increasingly difficult. It is essential for South Korea to closely monitor the policies of the second Trump administration and assess their implications for both domestic and global economies. Proactively developing timely and effective strategies to address these evolving risks is now a matter of utmost importance. .★