World Economic Update – January 2025

February 06, 2025 — This is our world economic update for January 2025, which presents a roundup of economic conditions from around the world.

Economic indicators released in January 2025 shows that the global economy finished 2024 in firm footing. Data from the US were particularly strong and some key economic indicators for China were positive.

IMF released updated forecasts in January for the global economy

The International Monetary Fund (IMF) released its World Economic Outlook Update in January 2025, which projected global economy to grow at 3.3 percent in both 2025 and 2026. This is below the historical average of 3.7 percent, indicating a slower pace of global economic growth ahead at least for the coming two years. IMF publishes its world economic outlook biannually in April and October and update them in July and January.

IMF forecasted advanced economies to accelerate growth from 1.7 percent in 2024 to 1.9 percent in 2025. The US economy is expected to lead the pack with a growth rate of 2.7 per cent in 2025.

IMF also forecasted Germany and Japan to record positive growth rates in 2025. Germany is forecasted to grow at 0.3 percent in 2025 compared to estimated -0.2 percent in 2024 and Japan is forecasted to grow at 1.1 percent in 2025 compared to estimated -0.2 percent in 2024.

IMF predicted global headline inflation to continue its downward trend, reaching 4.2 percent in 2025 and 3.5 percent in 2026. IMF Managing Director Kristalina Georgieva said at the World Economic Forum in Davos in January that while a remarkable progress has been made in tackling the inflation, there is some more work to be done to fully get it under control.

Donald Trump was sworn in for a second term as the 47th president of the United States on January 20. That followed trade and tariffs becoming a prominent topic once again, with renewed discussions of US tariffs on various countries, creating uncertainty to global trade and economic growth. By the end of January the world saw a strong possibility of US imposing additional tariffs on China, Mexico and Canada.

United States: Solid growth continues

The data released in January showed that the US economy continued its growth throughout 2024, despite a slower growth towards the end of the year. The fourth quarter GDP expanded at a 2.3 per cent annual rate according to the advance estimates by the U.S. Bureau of Economic Analysis, slower than the 3.1 per cent growth recorded in the preceding quarter. The quarterly growth was underpinned by a fast growth in consumer spending and government spending though investment experienced a decline. Policy uncertainty leadup to the presidential election, hurricanes and labour strikes likely have had a toll on the economy in the fourth quarter.

The US labour market remained strong, with unemployment declining slightly to 4.1 per cent in December from the 4.2 per cent in the previous month. January data also showed that core inflation declined marginally to 3.2 per cent in December from the 3.3 per cent reading in November.

The Federal Reserve held policy rates unchanged at the 4.25% to 4.5% range in the January meeting, after lowering the rates by a full percentage point in three successive meetings. The Federal Reserve cited solid economic growth, low unemployment, and strong labour market conditions as the reasons for the decision and noted the elevated inflation, which is higher than its target of 2 per cent in the longer term.

Euro Area: Rate cut amid moderate growth

The fourth quarter annual economic growth in the euro area was flat and the 2024 annual growth was estimated at 0.7 per cent, according to a preliminary estimate published in January by Eurostat, the statistical office of the European Union.

Euro area inflation ticked up to 2.4 per cent in December from the 2.2 per cent recorded in the previous month. January data also showed that euro area unemployment was unchanged at 6.3% in November compared to the previous month.

The European Central Bank (ECB) lowered interest rates by 25 basis points in January, citing progress in disinflation and expectations for inflation to return to its 2 per cent target.

United Kingdom: Slow growth and Brexit anniversary

The UK marked the fifth anniversary of its full departure from the EU amid concerns about slow economic growth. The January data showed that UK GDP growth remained low, with only 1 per cent growth recorded in the year to November. The monthly growth was 0.1 per cent in November and a negative 0.1 per cent in October.

In January, the UK government continued to show its commitment to accelerate economic growth by announcing large infrastructure projects and urging UK regulators to remove barriers to growth. “We must move beyond an excessive focus on risk and work towards creating a framework that empowers businesses to thrive and essential infrastructure to be developed”, UK chancellor Rachel Reeves said in a gathering with the chief executives from regulatory bodies overseeing crucial sectors, including railways, water, energy, and aviation. The Chancellor separately announced that within its first six months, the UK government has made 13 planning decisions and approved 9 nationally significant infrastructure projects, which include airports, data centers, energy farms, and major housing developments.

Inflation eased slightly to 2.5 per cent in December from the 2.6 per cent recorded in November, marking the first decline of inflation in three months. Unemployment edged up slightly to 4.4 per cent in November compared to the 4.3 per cent reading in October.

China: Property crisis continues

January data showed that China’s fourth quarter GDP growth surged to 5.4 per cent year-on-year, the strongest in a year and a half, after a series of stimulus measures launched since September to boost economic growth. These measures include interest rate cuts, relaxing the requirements related to home loans and continued public investments in infrastructure. Exports showed a strong growth with a 10.7 per cent growth in December, much higher than the 6.7% growth recorded in November.

Several other economic indicators published in January revealed that the challenges facing the world’s second-largest economy continue. The December inflation was very low at 0.1 per cent, which marked a decline in inflation for four consecutive months from 0.6 per cent in August.

China’s annual house price index sank further by 5.3% in December reflecting the ongoing housing crisis in the country. This marked the 18th consecutive month of decreases, despite continued efforts from the Government to reduce the impacts of a prolonged property weakness, such as lowering mortgage rate, cutting home buying costs, and enabling local governments to purchase unsold housing units and idle land using proceeds from special bonds.

January 2025 data also showed that China’s unemployment rate rose to 5.1 per cent in December 2024 compared to 5 per cent in November. Foreign direct investment (FDI) into China dropped further by 27.1 per cent in 2024, extending the 8 per cent drop in 2023.

While January data showed faster growth rates for China’s GDP and exports, the month was ended with increased uncertainty for its economy due to potential additional US tariffs on China’s exports.

India: continued positive momentum

January 2025 data shows that India's economy continued its momentum in the last months of 2024. The annual inflation rate in India eased to 5.22% in December of 2024 from 5.38% in the previous month. This rate of inflation is within the Reserve Bank of India’s target band of 2-6 per cent.

India’s merchandise exports slightly dropped to $38.01 billion in December 2024 compared to $38.39 billion in December 2023, according to government data released in January.

IMF forecast India’s economy to grow at 6.5% in both 2025 and 2026. IMF estimates that the growth in 2024 at 6.5 per cent.

Summary

January 2025 highlighted the diverse economic realities across the globe. While some large economies, like the US and India, demonstrated resilience and healthy growth, others, including the Euro Area and the UK, faced challenges. China's strong growth was tempered by concerns in its housing market and a sharp drop in FDI. The resurgence of trade tensions and the ongoing war in Ukraine created further uncertainty in the global economic outlook.

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