These are the main risks for the economy in 2025

The 2025 Economic and Industry Outlook report, prepared by MAPFRE Economics and edited by Fundación MAPFRE, establishes a risk framework for the next two years:

Financial risk and global debt

High levels of public and private debt remain one of the main risks to global financial stability. Global debt currently exceeds 256% of global GDP, with an increase in both advanced economies and emerging markets. This situation is aggravated by the recent increase in long-term government bond yields, which has led to an increase in debt service for many countries.

In the United States, 10-year bond yields have recently exceeded 4.5%, a level not seen in more than a decade, a scenario that puts greater pressure on the fiscal deficit, which is already around 7% of GDP. In Europe, countries with high levels of debt, such as Italy and Greece, face a growing risk of fiscal tensions, especially if markets begin to demand higher risk premiums for purchasing their sovereign debt. Furthermore, emerging markets are facing additional difficulties, as a large part of their debt is denominated in US dollars. The combination of a strong dollar and higher global interest rates is generating higher debt service costs, particularly in countries such as Turkey and Argentina, which already face structural problems in their public finances. 

Trade war and protectionism

The implementation of a new protectionist policy by the United States could trigger a trade war of significant proportions. This policy, by imposing tariffs on imports, seeks to protect domestic industries from foreign competition. However, the countries affected by these tariffs would surely respond with similar measures, which would result in increased trade tensions. In the short term, this trade war could lead to an increase in the prices of many products, as tariffs are passed on to consumers. Furthermore, the availability of certain goods could be seriously affected, generating scarcity in some sectors. This shift toward economic self-sufficiency would disrupt global supply chains and restrict access to essential imported goods. 

Inflation

Significant progress has been made in reducing global inflation, with most advanced economies showing sustained declines in price indices during 2024. However, the 2% target set by many central banks is proving more difficult to achieve than anticipated. Recent data indicate a slight upturn in inflation in some regions, raising concerns about the persistence of inflationary pressures. This rebound is largely explained by the resistance of the labor markets that remain strong and with unemployment rates close to historic lows. In this environment, central banks face the challenge of maintaining restrictive monetary policies without suffocating economic growth, while carefully assessing the risks of prolonging these conditions. 

Monetary policy and financial stability

The central banks of the G7 countries have begun a cycle of interest rate reduction, driven by progress in inflation control. However, by 2025, the pace of these declines is likely to slow down due to the strength of the labor markets and the risk of an inflationary surge. More persistent inflation, together with the increase in government bond yields, increases the risk that both governments and the private sector must refinance their debts at higher interest rates, which could lead to financial stability problems. Similarly, the increase in government bond yields causes unrealized losses in many portfolios throughout the financial system, which may be a risk to financial stability. 

Geopolitical environment

The global geopolitical landscape has shown certain advances, although it maintains a state of latent uncertainty. A ceasefire has been reached in the Israel-Gaza conflict. This agreement represents a relief for the region, although peace remains fragile due to mutual distrust and underlying structural challenges. In the conflict in Ukraine, the new US administration has intensified pressure on both parties, urging both Ukraine and Russia to sit at the negotiating table. This strategy reflects a change in US policy, which seeks to balance its support for Ukraine with the need to reduce geopolitical and economic risks. In addition, the United States is using its influence in Saudi Arabia to increase oil production, with the aim of reducing crude oil prices. This measure seeks to alleviate global inflationary pressures and stimulate economic growth, especially in a context where advanced and emerging economies are fighting against the effects of restrictive monetary policies. 

Real estate and financial risk in China

The Chinese real estate sector continues to face significant challenges. Sales of new homes have decreased, and property prices continue to fall. Some market observers expect sales to fall by 12% in 2025, with a notable decrease in housing prices. The difficulties in the Chinese real estate sector may affect both the national economy and, to some extent, global financial stability. These tensions in the real estate market increase the risk of debt default among the sponsoring companies, which could affect the banking system due to the significant exposure of financial institutions to the sector. 

Energy markets

Although the immediate pressures of the global energy crisis of 2022 have decreased, markets remain fragile, and the risk of further disruptions remains latent. Geopolitical factors, such as the continuation of the conflict in Ukraine and tensions in the Middle East, add uncertainty to the energy supply. Significant growth is observed in the area of renewable energy. Investment in clean energy has increased by 40% since 2020, driven by photovoltaic solar energy and electric vehicles. 

Real estate market

In developed markets, the residential sector has shown resilience, with notable increases in housing prices. However, the commercial and office real estate sector faces significant challenges, both in the United States and Europe. In addition, the increase in government bond yields has increased real estate financing costs, which may negatively affect property valuation and increase the risk of financial instability. This environment poses risks to financial stability, as the depreciation of real estate assets could affect financial institutions exposed to the sector. 

AI risks

Artificial intelligence (AI) represents a tool with enormous potential for global economic growth, but it also introduces significant risks to financial and social stability. First, its capacity to optimize processes, improve productivity, and reduce costs in multiple sectors could have a substantial positive impact on economic growth. However, the risks associated with the use of AI cannot be ignored. In financial markets, the use of automated trading algorithms has raised concerns about their potential to amplify volatility during periods of stress. These algorithms, designed to execute transactions within fractions of a second, can trigger chain reactions that exacerbate market downturns, as seen in events like the 2010 "flash crash." Thus, the lack of supervision and transparency in programming these algorithms could intensify these risks, especially if they interact with other factors of economic instability.

Another key challenge is the concentration of AI power in a few leading tech companies, which could limit competition and increase the risk of market abuse. In addition, AI also poses ethical dilemmas, such as biases in algorithms, loss of jobs due to automation, and the possible malicious use of cyberattacks. Finally, the lack of clear and consistent regulatory frameworks for AI increases uncertainty about its future impacts. 

Climate risk and natural disasters

In 2024, global economic losses from natural disasters reached 368 billion dollars, surpassing the 21st century average by 14%. This impact was primarily driven by tropical cyclones, severe convective storms, and floods. In this context, global insured losses totaled 145 billion dollars, the sixth most costly year in history for the insurance industry, with 78% of these losses concentrated in the United States. However, the protection gap remains significant, with 60% of total damages not covered by insurance, which affects recovery capacity in many regions.

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