Top Geopolitical Trends 2025

On Tuesday, 4 February 2025, we held our annual Board Leadership Center webinar on the Top Geopolitical Trends in 2025.

Geopolitical and economic shifts continue to drive volatility and uncertainty. So it’s no surprise that geopolitics – specifically the need for boards to maintain focus on how management is preparing to address these risks and opportunities – is again our number 1 item on the board agenda this year.

Companies need to think about risk events and how they will impact the company’s operations, business model, and strategy. However, it is also critical to understand the underlying structural shifts taking place – including geopolitical, demographic, technological, economic, climate, energy transition, and societal – and the longer-term implications.

To help you better understand the geopolitical landscape and its potential impacts for the year(s) ahead, Stefano Moritsch, KPMG’s Global Geopolitics Lead, walked us through the top geopolitical trends that are most relevant from business perspective, shared analysis done by our global alliance partner Eurasia Group in their annual Top Risks 2025 report, and explored the bottom line for business. 

We’re in the middle of what is called a “geopolitical recession.”

The previous geopolitical era – which started at the end of the Cold War and ended with the global financial crisis – was characterized by a high level of global cooperation under the US leadership, which allowed a unique level of economic integration and globalization, an important increase in international cooperation, and the flourishing of multilateral institutions such as the World Trade Organization (WTO).

We now see the rise of a multi-polar world. While the US is still the most powerful military and economic superpower, the geopolitical landscape is more contested with rising superpowers and middle powers who want to have a bigger say in international relations.

We have unprecedented levels of interdependence and economic integration between countries, which is threatened by ineffective global leadership. A consequential increase in global competition rather than collaboration between countries means that the ripple effects of a crisis in one part of the world are felt more intensely, particularly for globally integrated businesses.

As the world of geopolitics seems to be regressing to a more imperialist-style model, powerful nations will leverage their weight to be more transactional in their approach, focus on their economies and national interests first. Weaker nations will either need to strike political alliances and deals or risk being left behind. 

The new US policy agenda can be looked at in two categories with different macroeconomic effects.

On one hand are the policies that most economists and experts expect to have a more inflationary effect on the US economy: trade policy (with an emphasis on tariffs) and immigration policy (focused on the southern border and increasing deportations). Any tariffs imposed on goods for which no substitutions exist will likely be passed on to the American consumer. Many migrants work in critical sectors: they pay taxes; they are consumers. Depending on the scale, deportations could impact available labor and consequently the cost of labor.

On the other hand are policies that will have a growth spurring effect: deregulation (though the US is already relatively deregulated, especially compared to Europe) and tax policy (though tax cuts will mainly be a continuation of the baseline and they will need to be financed). 

In 2025, we could see a return of the unmanaged decoupling in the world’s most important geopolitical relationship. In the long term, whether they can strategically compete while coexisting or whether the competition will spill over into direct tensions will determine the future of the geopolitical order for years to come.

The expectation from analysts is that the Trump effect (combined with Ukraine’s struggle to maintain the resistance effort and Russia’s feeling the impact of the sanctions) might bring Russia and Ukraine to the negotiating table for a ceasefire. However, even if a ceasefire is achieved, the road to a sustainable peace agreement is likely to remain elusive in 2025. 

The outlook in the Middle East is one of cautious optimism in terms of marginal improvements in the security landscape – compared to last year – with a caveat of a low-likelihood, but high-impact fat-tail risk, driven by the weakened position of Iran in the region. An exposed and vulnerable Iran represents a window of opportunity from an Israeli and American perspective to try to target Iran’s nuclear program or use a “maximum pressure” approach to negotiate a deal. On the other hand, a vulnerable Iran could also decide to speed-up the development of a nuclear deterrence, leveraging closer cooperation with Russia. So, the main tail risk for the region in 2025 would be the scenario of a direct or covert conflict involving Iran, Israel, and the US.

In the context of the geopolitical recession, it will be hard for governments to come together to agree a set of rules to regulate AI technology, to make the most of the positives while sheltering society from the negatives. Organizations need to self-regulate as they implement AI in their businesses. Regardless of the regulatory environment though, energy availability remains a constraint. Inadequate power grids, data localization rules, environmental requirements, complex permitting processes, and local community resistance will all factor into companies’ ability to get the energy they need when and where they need it.

• AI: The global AI boom is driving economic growth and could engender a new industrial revolution. Companies in 2025 will move from investment to adoption with the technology bringing big promises in productivity gains, especially as agentic AI models come to the fore. However, the tech race is also fueling competition, rather than cooperation, between major countries and economic blocs.
• India: Now the most populous country in the world with a relatively stable political system, rapid economic growth, effective geopolitical balancing, and reform progress are all supporting India’s outlook.
• ASEAN: Southeast Asia’s major economies are benefiting from declining US rates, relatively low political risk, reshoring trends, and geopolitical shifts - notably Vietnam’s manufacturing boom.
• Latin America: A rise in foreign direct investment and abundance of critical minerals could add to economic growth.
• UK: Improving EU relations could bolster economic confidence and investment.
• EU: While EU faces a lot of challenges in 2025, it is also an opportunity to showcase European resilience: The EU should benefit from stronger leadership and lower inflation rates. It is expected to remain united in support of Ukraine. The EU is taking their responsibility to do more to protect European security seriously, and we expect to see an increase in military and defense budgets across Europe. The EU should also be able to mount a cohesive response to the new US administration’s trade demands. A clear focus on competitiveness could revamp sluggish growth.
• Focus on the energy transition: Although we’ll see a change in the regulatory landscape and more fragmentation on regulation related to climate and the energy transition, we don’t expect to see a halt in the move towards the energy transition. Particularly in Europe, it is not only about doing the right thing; there’s a geopolitical imperative to find indigenous sources of energy and to focus on clean energy and renewable resources to reduce Europe’s overseas energy dependence. 

Dive deeper into these and other trends in Eurasia Group Top Risks 2025 report.