The world economy faced strong headwinds in 2025, primarily as a result of escalating trade tensions due to the U.S.’ “reciprocal tariffs”, causing substantial uncertainties in supply chains and the global economy. China, meanwhile, managed to maintain stable economic growth throughout the year, with a high possibility of achieving annual GDP growth of more than 5%, contributing about 30% to total global economic growth. Starting in February, the United States imposed high tariffs on China and other trade partners, which went against the principle of free trade and dealt a heavy blow to global supply chains. Although China initiated counter measures to force Washington back to the negotiating table and ultimately lower the tariffs, the damage had already been done, experts said. “2025 was a challenging year for the world economy,” said Gerard Lyons, a British economist who holds senior positions in several financial institutions in London. “The unpredictability of U.S. policy and the impact of tariffs were the major events.”
According to the International Monetary Fund (IMF), the global economy is adjusting to a landscape reshaped by new policy measures. Although some extremes of higher tariffs were tempered, the overall environment remains volatile, and temporary factors that supported activity in the first half of 2025, such as front-loading, are fading. In its October World Economic Outlook report, the IMF forecast the global economy growth would slow from 3.3% in 2024 to 3.2% in 2025. “The pattern in the global economy is clear and striking; the traditional economy is ex-growth or in recession while the innovation-driven economy is full steam ahead, and this great divergence explains economic growth across the globe,” said Joyce Zhou, CEO of Oakcean Capital, a London-based wealth management company.
The European Union economy expanded by 1.6% year-on-year in the third quarter of 2025, down from 1.7% in the previous period, according to Eurostat statistics. “European growth has been lackluster overall this year, primarily driven by the lack of a vibrant technology sector, and the de-industrialization risk in a few key sectors like auto and machinery,” said Zhou of Oakcean Capital. “The reality and bad news is it is unlikely that Europe is able to catch up with growth of the U.S., because slower growth in the EU is deeply rooted in two somewhat related reasons: over regulation and lack of major innovation and tech companies and sectors,” Zhou added.
China’s economy remained on track despite the U.S. tariff hikes since the start of 2025. GDP growth in the first three quarters was 5.2% year-on-year, 0.4 percentage points higher than in the same period of the previous year. Its trade surplus reached USD1.08 trillion in the first 11 months of the year, the first time it has crossed the USD1 trillion threshold. “China’s export sector has remained resilient despite the strong tariff headwinds from the U.S.,” KPMG China said in a report. Another major contributor is the country’s industrial upgrading following breakthroughs in AI and the government’s support for the private sector and technological innovation, which have led to increased high-tech investments, it said. From 2015 to 2025, the global economy grew by 35%. China’s contribution to global GDP growth was 31.2%, according to research by London-based World Economics.
“Looking to 2026, we think AI and innovation will stay robust, but export growth is subject to geopolitical risks, and the secular deflation trend is tough to end and will likely remain a drag,” said Zhou of Oakcean Capital. AI will continue to be the key growth driver. At the same time, slower inflation and weak jobs data are expected to kick-start an easing monetary cycle, providing a boost to the non-AI economy and consumers, she added. The U.S. economy will benefit from the AI innovation and investment boom in 2026. The European economy will benefit from any peace deal in Ukraine, which would start a reconstruction boom in parts of Europe, said Zhou.
After China registered 5.2% year-on-year GDP growth in the first three quarters of 2025, market watchers became more confident about its growth prospects in 2026, although they said challenges remained. In October, President Xi Jinping met his U.S. counterpart Donald Trump in Busan, South Korea, while they also had three phone calls throughout the year. The engagement of the top leadership led to de-escalation of trade tensions and created room for further improvement in bilateral economic relations in 2026, analysts said. China could also reduce the impact of Sino-U.S. trade conflicts through trade diversification. The annual Central Economic Work Conference (CEWC) was recently held to map priorities for economic policymaking in 2026, including measures to boost consumption, formulating and executing plans to raise incomes for urban and rural residents, and expanding the supply of high-quality goods and services. The meeting also vowed to promote innovation and further reform and opening-up, the China Daily reports.
In his annual televised New Year’s speech, President Xi Jinping issued a rallying cry for the country to double down on efforts to boost economic growth and technological advancement, and “write the next chapter of the Chinese miracle”.
