Economic growth poised to slow

KPMG International is forecasting global GDP growth to slow to rates not seen since the global financial crisis of 2008/9 as geopolitical and economic uncertainty become core themes for CEOs.

The latest KPMG Global Economic Outlook predicts gross domestic product (GDP) internationally is poised to slow from 3.2 percent in 2024 to 2.7 percent in 2025 before regaining some ground to 2.8 percent in 2026.

Meanwhile global inflation is expected to cool from 4.5 percent in 2024 to 3.6 percent in 2025 and hit 3.1 percent in 2026.

The latest forecasts were outlined in KPMG International’s first ever Global Economic Outlook webinar, which was attended by almost 2000 executives across the world. The broadcast was designed to analyze and break down some of the challenges and opportunities ahead in such a complex period of time for the business community.

Current market and trading volatility was reflected in LIVE polling which was conducted during the global broadcast. Attendees were asked what their top concern was right now for their organization, with more than a third (34%) saying macroeconomic volatility was the biggest threat, while 30 percent described geopolitical instability as their top concern. Meanwhile, nearly half (47%) said their company’s growth prospects had worsened since January. Furthermore, when asked about their organization’s strategic response to tariffs, only 40% said they have no significant changes planned in relation to their strategy for responding to tariffs and global trade dynamics.

Regina Mayor, Global Head of Clients & Markets at KPMG Interational, said: “In today's business landscape, KPMG's latest Global Economic Forecasts are unlikely to catch any business leaders by surprise. Throughout my experience engaging with CEOs, I've observed that uncertainty consistently ranks as their foremost concern. Currently, executives are adopting a ‘pause and prepare’ strategy, delaying significant investment decisions as they brace for potential economic downturns that may hinder growth aspirations.”

“Despite today’s challenges, it is crucial for business leaders to shift their focus toward identifying opportunities and viewing geopolitical risks as strategic assets rather than obstacles. This is an opportune moment to harness these insights to navigate the intricate global economic terrain. CEOs must remain informed, agile, and ready to adapt to swiftly evolving circumstances.”

KPMG’s Global Geopolitics team describes the current international scenario as a ‘Critical Recession’ – a transitional phase moving from a US-dominated era of globalization toward a more multipolar world. This shift sees emerging powers, including India, Brazil, Mexico and Türkiye, and economies in Southeast Asia, asserting their influence, leading to a more contested geopolitical environment.

Stefano Moritsch, KPMG’s Head of Global Geopolitics, commented: “We now face potentially more global conflict than at any time since 1946. This historic surge in turmoil adversely affects supply chains and operations, particularly near critical trade nodes such as the Bab-El-Mandeb Strait/Suez Canal, the South China Sea, and the Panama Canal. These areas, essential for global trade, are increasingly vulnerable to disruptions owing to regional conflicts and overlapping sovereignty claims.”

“The fragmentation of global trade, increased conflict and ongoing uncertainty over tariffs in the US is forcing business leaders to pause and adopt a ‘wait and see’ approach. Volatility is the new normal and companies should treat geopolitical risk as an asset, rather than a new threat. The imperative for businesses now is to develop a clear vision of how these geopolitical trends will affect their strategic objectives not only in the immediate term but over the coming years. With a deeper understanding of these geopolitical dynamics and proactive engagement in risk management, businesses can navigate the turbulent environment more adeptly, turning uncertainties into opportunities.”

Rampant policy shifts and escalating trade tensions are driving a predictable economic slowdown across the Americas.

Pervasive uncertainty functions as an economic tax, stalling business investments and decision-making as executives across both North and South America grapple with a deeply unpredictable policy environment.

As businesses across the Americas continue to seek greater clarity, the impact is being felt on GDP growth, which is expected to decelerate to 2.7 percent in 2025, marking the weakest growth period across the region since the financial crisis of 2008/9.

Diane Swonk, Americas Chief Economist at KPMG International, said: "Tariffs are predicted to rise significantly, scaling from a rate of 2.8% to over 20% by year-end. The uncertainty drove an unprecedented surge in the US trade deficit, almost doubling previous records due to stockpiling ahead of tariffs. It points to the frantic efforts of businesses to mitigate the immediate impact of tariffs.”

Despite the deepening economic concerns across the Americas, some opportunities for growth are emerging, with Brazil standing out as a beacon of potential amidst the gloom. Leveraging its close trade relationship with China, Brazil offers unique growth avenues, particularly in agricultural exports. The country’s strategic ties with China could mitigate some of the adverse impacts from US trade policies, positioning the country as a relatively stable player in the region. 

Europe faces a modest growth outlook in the short term, as uncertainty weighs on business investment and consumer confidence, with Eurozone GDP expected to increase by around 0.9% in 2025 and 1.1% in 2026.

The picture is mixed however, with subdued overall growth masking divergent performances across the continent. European economies are shaped by differences in economic fundamentals, as well as fiscal constraints and exposure to current geopolitical headwinds.

Ramona Jurubiță, Country Managing Partner, KPMG in Romania commented: “It is a volatile environment in which Romania faces a challenging strategic landscape shaped by multiple interconnected risks. First, there is the uncertainty in relation to US trade policies which, for Romania, pose greater threats through their ripple effects across the supply chains of the European Union than through direct bilateral trade impacts, given Romania's deeper economic integration with EU partners than with the United States. Then, Romania's elevated budget deficit and persistent current account deficit, under pressure from markets and trading agencies, require substantial fiscal consolidation and structural reforms to ensure economic sustainability. However, the method to be used for any fiscal consolidation will be critical. The right balance needs to be achieved between long and medium-term economic development and raising budget revenue in the nearer term. Economic growth has been slowing down gradually over the last four years. An effect of the fiscal measures announced by the Government could be an additional decrease in the economic growth rate. The risk is accentuated by the impact of increased tax on capital, which discourages exactly the behaviour which creates prosperity: innovation, entrepreneurship, and saving. Consequently, future fiscal policy should place greater emphasis on reconsidering unproductive public spending, reforming the National Agency for Fiscal Administration (ANAF) to improve collection and reduce tax evasion, while maintaining the recent increase in VAT as a temporary measure. This approach would minimize interference with the free functioning of the market. All of these measures would strengthen markets and investors’ confidence, currency stability, and economic freedom, supporting Romania’s sustainable development.”

Southern and Eastern European economies such as Spain and Poland are performing strongly, thanks to robust domestic demand, targeted investment, and solid labour market performance. In contrast, many core economies such as Germany and France continue to face structural and fiscal constraints that could limit their growth.

Difficult economic conditions and persistently weak demand have compelled many Romanian businesses to adjust. The latest survey by the Foreign Investors Council (FIC) shows that nine out of ten companies are considering cost reductions in the upcoming period while only a third plan to invest more over the next year. However, for some sectors, such as defence, infrastructure or ITC, there is a lot of upward potential. Aided by increased EU funds absorption these could prove to be engines of growth in the near future.   

Ramona Jurubiță concludes: “The country's economic resilience will largely depend on how effectively it can implement domestic reforms while navigating EU collective management of trade tensions with the US. Even though current economic prospects appear to be less positive than a year ago, market disruptions also creates strategic opportunities. Mergers and Acquisitions could see a boost, paving the way for market consolidation, while supply chain rebalancing could help some busineses reduce risk through diversifying suppliers. Companies that move decisively and early could secure a competitive advantage.”    

Yael Selfin, European Chief Economist at KPMG International, said: “Europe remains vulnerable to an escalation of tariffs, particularly on pharmaceuticals, which make up a large share of exports for a number of European economies. This continuing uncertainty is creating a degree of cautiousness in business planning and investments.”

A changing geopolitical environment is driving a shift in European defence spending, with governments across the continent announcing plans to devote higher levels of funding to the sector. Initial increases are likely to focus on procurement spending, funded by increases in borrowing.

A commitment to increase borrowing may put further strain on government finances, potentially creating more pressure on highly indebted European governments and hastening the need to move away from debt finance. 

Yael concludes: “The pivot to defence may offer an opportunity to provide greater focus on European research and development. This in turn could mean positive spillover opportunities for dual-use technologies, as well as research-intensive defence subsectors such as aerospace, cybersecurity, advanced robotics, and autonomous drones.”

Trade uncertainty, driven in large part by the ongoing uncertainty over US trade policies is increasingly impacting economic conditions across the Asia-Pacific region, primarily due to the region’s high reliance on international trade. Economies like Singapore and Hong Kong (SAR), China stand out with their extraordinary export proportions, constituting 190 percent and 170 percent of GDP respectively.

KPMG International is predicting Singapore’s GDP growth could plummet by as much as 3 percent by early 2026, likely pushing the small city state into a recession. Similarly, Hong Kong’s GDP growth is expected to decline by about 1.5 percent within the same period, underscoring significant economic downturns.

China, the region’s economic behemoth, is also slated to experience a slowdown. Its GDP growth is predicted to fall by about 0.5% by the end of 2025, with the impact intensifying to around 0.9% by 2027 due to the imposition of US tariffs. Japan and South Korea are not spared from these economic shocks either; Japan’s growth is likely to decrease to around 0.5% in 2026, while South Korea is expected to see a reduction of 1.5% by 2028.

Dr. Brendan Rynne, KPMG International’s Asia-Pacific Chief Economist, added: “The new US administration’s trade policy changes are going to have some serious consequences for ASPAC economies. These repercussions are particularly severe due to the region’s intertwined trade networks. Economies throughout the region may strategically pivot in response to these changes, whether through diversifying trade partnerships, investing in technology to enhance production efficiency, or bolstering domestic markets to mitigate impacts.”

A recording of the June 2025 KPMG Global Economic Outlook webinar is available to watch in full by clicking: kpmg.com/globaleconomicoutlook