Economic growth in 2025 has defied the gloomy expectations

2025 has been a year of steep ups and downs for the global economy—at least where growth forecasts have been concerned. The consensus forecasts of economists have swung from optimism to pessimism and back again. Yet actual economic activity has remained remarkably resilient. Forecasters now expect global growth of about 2.7 percent—broadly in line with expectations at the start of the year (figure 1A).

Until late March, the global economy was performing roughly as had been expected at the start of the year—forecasts were stable. Then the picture changed: in April, sweeping tariff hikes triggered a sharp rise in trade tensions between major economies. Policy uncertainty surged to unprecedented highs, markets braced for a significant global slowdown, and forecasters lowered their expectations. By May, consensus forecasts were pointing to one of the weakest outcomes in recent years, with the global growth forecast for 2025 cut by 0.4 percentage point.

Since then, momentum has shifted sharply. The tariff shock has not—at least so far—produced the rapid downturn many feared. Activity has held up across many economies, and while uncertainty is still elevated, it has eased from the record levels reached in the spring. As a result, consensus forecasts for 2025 have fully recovered the ground lost earlier in the year.
 

A Broader Base of Post-Pandemic Resilience

This pattern is familiar. Since the pandemic, the global economy has repeatedly defied expectations, consistently delivering better-than-anticipated growth. Between 2011 and 2019, global growth forecasts were generally accurate, with analysts overestimating actual outcomes by only about 0.1 percentage point per year, on average, at the beginning of each year. The post-pandemic period has been very different. During 2022–24, actual global growth exceeded consensus expectations by roughly 0.3 percentage point annually. The United States accounted for over 60 percent of this upside surprise, but several emerging market and developing economies (EMDEs) also made notable contributions (figure 1B).

In 2025, the United States experienced the largest swing in growth expectations among the major economies, with forecasts falling from 2.2 percent in January to 1.2 percent in May before recovering to 2.0 percent by November. This rebound reflected strong AI-related investment, lower interest rates, continued fiscal support, and modest tariff pass-through. But resilience extended well beyond the United States. Across other advanced economies, projected growth has returned to 1.4 percent—up from 1.0 percent in May and close to January levels—with the euro area benefiting from easing inflation, declining interest rates, and targeted fiscal measures.

Growth prospects for EMDEs excluding China have remained stable at around 3.5 percent, while expectations for China have improved as policy support helped offset weakness in the real-estate sector.  More broadly across many EMDEs, resilient services activity, diversified export markets, and lower inflation and interest rates have underpinned stronger-than-expected outcomes.

The revision to U.S. growth forecasts since May remains the largest single driver of the global upgrade, accounting for 37 percent of the improvement in global prospects. Upgrades for other advanced economies explain 32 percent, while China’s improved growth outlook contributes 23 percent.

Beyond these country-specific drivers, a set of global factors has also been instrumental in sustaining activity since April.
 

Lower Trade Policy Uncertainty and Buoyant Trade

Trade developments have played a central role in shaping global growth expectations this year. Despite the sharp rise in trade restrictions, the pace of new measures has eased in recent months. Global trade-policy uncertainty, which surged to a peak in April, has since receded to levels comparable to those seen at the start of the year (figure 2A). This moderation, combined with progress on bilateral and regional trade negotiations, has helped stabilize business sentiment and reduce fears of a severe trade contraction.

Trade itself has shown surprising strength. Global goods trade expanded at an average monthly rate of 4.8 percent through September 2025, accelerating from 2.5 percent in 2024 (figure 2B). The resilience partly reflects front-loading of shipments ahead of tariff implementation, as well as firms’ ability to adapt supply chains and absorb some tariff-related costs. Services trade, particularly in information and business services, has also remained robust.

Although leading indicators—such as new export orders—signal that the temporary boost from front-loading may fade toward year-end, the overall picture remains one of remarkable stability in global trade flows. For EMDEs, which now account for nearly 40 percent of global trade, deeper regional integration and new trade agreements have further supported economic activity, helping offset the drag from trade-restrictive measures elsewhere.
 

Accommodative Financial Conditions and Lower Energy Prices

Developments in financial and commodity markets have also supported the shift in expectations. Financial conditions have loosened significantly since the spring, driven by strong risk appetite, buoyant equity markets, and a more accommodative monetary stance in the United States (figure 3A). A weaker U.S. dollar and lower long-term yields have improved access to capital for EMDEs, enabling a recovery in foreign-currency bond issuance and contributing to narrower spreads.

Energy markets have also provided support (figure 3B). Brent crude prices have declined by about 12 percent since the start of the year, reflecting ample supply and subdued demand growth. Overall, energy prices remain far below their 2022 peaks, easing headline inflation and bolstering real household incomes.
 

From Midyear Pessimism Back to a Familiar Baseline

Despite these welcome short-term surprises, the underlying trajectory of the global economy remains a cause for concern. Consensus forecasts still point to global growth this year that is below the post-pandemic average and among the weakest since 2008. Growth prospects could weaken if a shift in market risk appetite leads to tighter financial conditions, thereby heightening volatility in currencies and capital flows. Escalating geopolitical tensions could once again undermine confidence and trade flows. More broadly, any renewed increase in trade restrictions could hurt growth prospects.

For the moment, however, a collective sigh of relief might be in order. After three years of outperforming expectations, the global economy has done so again this year, underscoring its resilience. The easing of trade-policy uncertainty, stable energy markets, and the continued ability of firms and households to adapt to shocks all suggest that the global economy is better positioned to absorb disruptions than in the immediate aftermath of the pandemic.

Figure 1. Growth forecasts and contributions

Figure 2. Trade uncertainty and growth

Figure 3. Financial conditions and commodity prices