Q3-2025 Navigating a tepid recovery.

Q3-2025 Navigating a tepid recovery.

Our thoughts. | Geopolitical outlook. | June 30, 2025. | Written by Team of experts.

As the world economy enters the third quarter of 2025, the prevailing narrative is one of cautious navigation through a period of tepid and uneven recovery. Following several years of unprecedented disruptions, including the COVID-19 pandemic, subsequent supply chain crises, and significant geopolitical conflicts, a sense of fragile stability is emerging. However, underlying challenges, including persistent inflationary pressures in some regions, the lingering effects of tightened monetary policy, and significant geopolitical uncertainties, continue to shape a complex global economic landscape. Projections suggest a continued, albeit modest, global GDP growth, with significant divergences remaining between advanced economies and emerging markets.

One of the most dominant features anticipated for Q3-2025 is the ongoing adjustment to a higher interest rate environment. While the peak of aggressive monetary tightening by central banks is largely expected to have passed by this point, the lagged effects of these policies will continue to filter through economies. This translates into constrained business investment and subdued consumer demand, particularly for interest-sensitive goods and housing. Inflation, while expected to have moderated from its recent peaks, may prove sticky in certain sectors and regions, preventing a swift pivot towards more accommodative monetary stances. Consequently, businesses and households will likely still be contending with relatively high borrowing costs, influencing spending and investment decisions.

Regionally, the economic picture in Q3-2025 is likely to remain varied. Advanced economies, such as the United States and the Eurozone, are anticipated to experience below-average growth. The US economy, while potentially showing more resilience than some of its peers, will likely see a slowdown as cumulative rate hikes impact activity. The Eurozone, heavily exposed to energy price volatility and geopolitical tensions in Eastern Europe, may struggle with more anaemic growth, with ongoing debates about fiscal consolidation and structural reforms influencing its trajectory. In contrast, emerging market and developing economies (EMDEs) are expected to be the primary engines of global growth. However, this group is far from monolithic. Commodity-exporting EMDEs may benefit from relatively stable, albeit not soaring, commodity prices, while others will grapple with high debt burdens, currency fluctuations, and domestic inflationary pressures. Countries in Asia, particularly India and parts of Southeast Asia, are generally forecast to exhibit stronger growth dynamics, driven by domestic demand and, to some extent, a reconfiguring of global supply chains.

Geopolitical factors will continue to cast a long shadow over the economic outlook in Q3-2025. Ongoing conflicts, trade tensions between major economic blocs, and the broader trend of geoeconomic fragmentation are likely to weigh on international trade and investment flows. Businesses will be navigating an increasingly complex regulatory environment and potentially re-evaluating their global footprint, leading to shifts in supply chains that could create both opportunities and disruptions. Furthermore, the increasing frequency and intensity of climate-related events pose a significant and growing risk to economic stability across the globe, potentially impacting agricultural output, infrastructure, and insurance costs.

In conclusion, the third quarter of 2025 is poised to be a period of continued adjustment and recalibration for the global economy. While the acute crises of the early 2020s may have receded, the path forward is characterized by modest growth, the ongoing repercussions of anti-inflationary measures, and a landscape fraught with geopolitical and environmental uncertainties. Resilience, adaptability, and targeted policy interventions will be crucial for navigating this complex environment and fostering a more sustainable and equitable global recovery. The divergences between regions will likely become more pronounced, emphasizing the need for tailored approaches to economic challenges and opportunities.