By Rhea Crisologo Hernando, Glacer
Niño A. Vasquez and Carlos Kuriyama
15 May
2025,
The global economy in 2025 is navigating a
complex and volatile environment. Escalating trade tensions,
rising protectionism and shifting supply chains are
reshaping the growth landscape, particularly in the APEC
region, and urging policymakers to adapt
swiftly.
Growth Outlook Weakens amid
Uncertainty
APEC economies are seeing a
sharper downgrade in growth than the rest of the world.
Regional GDP growth is projected to slow significantly to
2.6–2.7 percent in 2025–2026, down from 3.6 percent in
2024. These projections are notably lower than the
3.1–3.3 percent forecasts in the March
2025 APEC Regional Trends Analysis (ARTA), highlighting
how rising trade tensions and heightened uncertainty are
undermining the recovery.
Monetary policy
rates hold steady as economies closely monitor inflation and
exchange rate pressures amid global headwinds. Oil prices
are falling on oversupply and subdued demand, while food
prices remain stable, supported by balanced production and
steady consumption.
Although a global recession
remains unlikely, persistent economic uncertainty is
weighing heavily on trade flows, investments and long-term
decision-making. Businesses have put on hold investment
decisions, including the launch of new products and
strategies, affecting not only trade in goods, but also in
services.
Trade Contraction Clouds Regional
Prospects
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The global trade environment is expected to
deteriorate in 2025. Merchandise trade volume growth is now
projected to turn negative, from an expected 3.0 percent
expansion to a contraction of -0.2 percent.[1]
Growth in commercial services exports has also been revised
downward, from 5.1 percent to 4.0 percent.
Within
APEC, the volume of goods and services exports is expected
to grow by just 1.1 percent in 2025 on average, a sharp
reduction from 6.1 percent in 2024.
While many APEC
economies continue to pursue trade-facilitating
policies—aimed at streamlining cross-border flows and
supporting domestic sectors—these efforts are increasingly
offset by a surge in restrictive and discriminatory
measures. According to the Global Trade Alert database, the
use of subsidies rose to 14,498 cases in 2024 from 12,733 in
2022, alongside other non-tariff measures.
At the same
time, trade remedies such as anti-dumping measures and
countervailing duties are becoming more common, reflecting
growing concerns among APEC economies about unfair trade
conditions.
The shift toward a more nuanced trade
policy could yield mixed outcomes. Indeed, the export
outlook across APEC economies is increasingly uneven, shaped
by shifting global dynamics and robust demand in certain
sectors, while widespread trade uncertainties cast a long
shadow over broader prospects.
Trade Policy
Uncertainty Reaches Historic
Highs
Indices measuring economic
uncertainty have surged to unprecedented levels; in
particular, the index on trade policy uncertainty went up to
900 points in 2025—a tenfold increase compared to the
2015–2024 average of 85 points.
This
surge reflects escalating tariffs (and retaliatory
measures), rising geopolitical tensions, and policy
fragmentation, which have clouded the global trade and
investment environment. Small and trade-dependent economies
are especially vulnerable, facing limited resilience to
external shocks. Meanwhile, the growing prioritization of
domestic concerns over international cooperation threatens
to heighten volatility in global markets and dampen
growth.
Historical data underscores the risks: a
substantial rise in tariffs correlates with significant
long-term economic losses. An empirical research shows that
a 10-percentage-point increase in tariffs can lower GDP by
around 1.1 percent after five years, highlighting the
damaging impact of protectionism on economic performance
over time.[2]
Financial
Market Volatility Signals Rising Risks
Financial
markets are also exhibiting warning signs. The global
volatility index spiked to 52 points in April 2025, more
than triple the 2023–2024 average of just 16
points.
This reflects heightened concerns over
trade tensions, inflation risks, and broader geopolitical
instability. Investor sentiment has become more fragile,
driving up demand for safe-haven assets like gold, which has
soared to record levels of around USD 3,200 per troy ounce
so far in early May 2025, from an average of USD 1,400 per
troy ounce during the period 2010-2020. Without clearer
policy signals, financial markets are likely to remain
hypersensitive to shocks, further complicating investment
decisions and amplifying economic risks.
Debt and
Demographic Add to Long-Term Pressures
Soaring
general government gross debt continues to limit fiscal
space, from a pre-pandemic average of 89 percent of GDP,
increasing to 103 percent of GDP during the pandemic, and
expected to reach 110 percent of GDP in 2024-2030. The
projected rise in public debt, surpassing the pandemic peak,
underscores the need for structural reforms to balance
long-term growth with rising fiscal pressures.
Adding
to the ongoing challenges are demographic shifts. The APEC
population is projected to decline from 3 billion today to
2.2 billion by 2100, with an ageing population and a
shrinking youth base that could strain social systems,
reduce workforce, and challenge growth objectives.
Governments will face greater pressure to raise public
expenditure in health, pension and other social support
measures as the population ages, while ensuring that fiscal
debt remains manageable.
Policy Imperatives for an
Adaptive and Resilient Future
In light of these
challenging conditions, a shift in policy strategy is
urgently required. Policymakers must not only manage
short-term risks but also invest in long-term structural
resilience to sustain growth in an increasingly uncertain
and fragmented world.
Recalibrate trade
policy
- Promote trade stability:
De-escalate trade tensions and reduce policy uncertainty to
restore confidence in trade and investment. - Pursue
trade diversification: Expand trade partnerships, target new
geographic markets, and broaden the range of export and
import products to reduce vulnerability and create new
opportunities for growth.
Agile
monetary and fiscal
policies
- Responsive monetary policy
action: Adjust monetary policy swiftly to manage inflation
while maintaining support for stable economic
growth. - Strategic fiscal investments: Focus fiscal
policy on strategic sectors, striking a balance between
long-term growth and prudent
spending.
Resilience-enhancing
structural reforms
- Strengthen labor
markets: Promote skills development, workforce
participation, and adaptability to support economic
transitions. - Boost competitiveness: Implement
reforms and promote innovation to help businesses thrive
amid global disruptions. - Harness digital innovation:
Invest in digital infrastructure to improve efficiency and
productivity.
Revitalize multilateral
cooperation
- Tackle shared
challenges: Strengthen multilateral efforts to tackle shared
economic challenges, including fostering continuous policy
dialogue toward collective action and global
stability. - Coordinate crisis responses: Enhance
global cooperation to improve resilience and responsiveness
to future economic shocks.
The global economy
stands at a critical juncture. Protectionist trade measures
are aggravating geopolitical tensions and contributing to
heightened volatility—developments that could redefine the
future of trade and impact on global stability. This growing
uncertainty is also dampening economic growth prospects well
into the medium term. Nonetheless, with strategic and
forward-looking policies—focusing on agility, resilience,
and cooperation—APEC economies can navigate current
challenges and emerge stronger and more competitive in a
rapidly changing world.
Rhea Crisologo
Hernando is analyst, Glacer Niño A. Vasquez is researcher,
and Carlos Kuriyama is director at the APEC Policy Support
Unit.
Notes:
[1]
October 2024 WTO trade forecast: https://www.wto.org/english/news_e/news24_e/stat_10oct24_e.htm;
April 2025 WTO trade forecast: https://www.wto.org/english/news_e/news25_e/tfore_16apr25_e.htm
[2]
Furceri et al. (2020), Are Tariffs Bad for Growth? Yes, Say
Five Decades of Data from 150 Countries, Journal of Policy
Modeling; APEC PSU staff
calculations.
