The world economy faced strong headwinds in 2025, primarily as a result of escalating trade tensions thanks to the US' "reciprocal tariffs", causing substantial uncertainties in supply chains and the global economy.

China, meanwhile, managed to maintain stable economic growth throughout the year, with a high possibility of achieving annual GDP growth of more than 5 percent, contributing about 30 percent of total global economic growth.

Starting in February, the United States imposed high tariffs on China and other trade partners, which went against the principle of free trade and dealt a heavy blow to global supply chains. Although China initiated countermeasures to force Washington back to the negotiating table and ultimately lower the tariffs, the damage had already been done, experts said.

"2025 was a challenging year for the world economy," said Gerard Lyons, a British economist who holds senior positions in several financial institutions in London. "The unpredictability of US policy and the impact of tariffs were the major events."

Apart from trade tensions, the ongoing conflict in Ukraine also affected investor mood across the globe, with the European economy suffering the most. Rising inflation also posed a threat to much of the developed world in 2025.

"The global economy has had to withstand a number of extraordinary body blows such as tariffs, continued conflict in Eastern Europe and a much more national interest focus for economies," said Aly-Khan Satchu, a leading investment banker from Kenya.

According to the International Monetary Fund, the global economy is adjusting to a landscape reshaped by new policy measures. Although some extremes of higher tariffs caused by US trade measures were tempered, the overall environment remains volatile, and temporary factors that supported activity in the first half of 2025, such as front-loading, are fading.

In its October World Economic Outlook report, the IMF forecast the global economy would slow from 3.3 percent in 2024 to 3.2 percent in 2025.

"The pattern in the global economy is clear and striking; the traditional economy is ex-growth or in recession while the innovation-driven economy is full steam ahead, and this great divergence explains economic growth across the globe," said Joyce Zhou, CEO of Oakcean Capital, a London-based wealth management company.

Mixed performances

In the United States, the world's largest economy, the last round of tariffs came in as its economy started to show signs of a material slowdown, the IMF report said. Investment, for example, has slowed, despite a surge in spending on AI-related and other equipment, and intellectual property.

Since July, jobs reports have been much weaker than expected, with a significant decline in the number of jobs added, the IMF said. The unemployment rate edged up to 4.3 percent in August.

Inflation remains a headache for the US — partially originating from the country's tariff policies — and it has taken measures, such as assistance packages for farmers, in an attempt to hold it down.

"Those (prices) have gone up because a lot of those (goods) are imported and there are tariffs on those. Now, this is something which the US government would want to control as they go ahead," said Amitendu Palit, senior research fellow and research lead (trade and economics) at the Institute of South Asian Studies at the National University of Singapore.

The European Union economy expanded by 1.6 percent year-over-year in the third quarter of 2025, down from 1.7 percent in the previous period, according to Eurostat statistics.

"(European) growth has been lackluster overall this year, primarily driven by the lack of a vibrant technology sector, and the de-industrialization risk in a few key sectors like auto and machinery," said Zhou of Oakcean Capital.

"The reality and bad news is it is unlikely that Europe is able to catch up with growth of the US, because slower growth in the EU is deeply rooted in two somewhat related reasons: over regulation and lack of (major) innovation and tech companies and sectors," Zhou added.

Asian economies saw a mixed performance in terms of GDP growth.

China's economy remained on track despite the US tariff hikes since the start of 2025. GDP growth in the first three quarters was 5.2 percent year-on-year, 0.4 percentage points higher than the same period of the previous year. Its trade surplus, in particular, exceeded $1 trillion to reach $1.08 trillion in the first 11 months of the year, the first time it has crossed the $1 trillion threshold.

"China's export sector has remained resilient despite the strong tariff headwinds from the US," KPMG China said in a report. Another major contributor is the country's industrial upgrading following breakthroughs in AI and the government's support for the private sector and technological innovation, which have led to increased high-tech investments, it said.

From 2015 to 2025, the global economy grew by 35 percent. China's contribution to global GDP growth was 31.2 percent, according to research by London-based World Economics.

However, Japan, another major Asian economic powerhouse, saw its GDP growth contract in the July-to-September period, for the first time in six quarters. Preliminary data showed the country's GDP decreased by 0.4 percent in price-adjusted real terms from the previous quarter, marking an annualized contraction of 1.8 percent, according to a calculation based on Cabinet Office statistics.

The Association of Southeast Asian Nations economy, an increasingly important growth point for the world's economy, mostly stayed flat in 2025. Research institutions projected its GDP to expand by about 5 percent as a whole.

Vietnam was the fastest growing economy in the grouping, registering 8.2 percent year-on-year GDP growth in the third quarter of the year.

"The ASEAN economy continues to grow at a moderate pace," said Palit of the National University of Singapore.

"It is not growing at a great rate, it is not growing at a very slow rate, it is growing at an average rate. And that average rate is something which has been with the ASEAN region for some time," he added.

The African economy, another promising growth engine, was projected to rise to 3.9 percent in 2025 from 3.3 percent in 2024, and reach 4 percent in 2026 despite mounting geopolitical uncertainties and trade tensions, according to a forecast by the African Development Bank Group.

"Africa has enjoyed a significant tailwind from a weaker dollar, which has created a positive feedback loop of stronger domestic currencies and lower interest rates, all of which have meant a forward-looking and constructive Africa-wide GDP," said investment banker Satchu.

The US dollar has remained on a downward channel since the start of 2025. "One of the big stories in 2025 was the passive diversification away from the dollar, as investors globally placed less of their net new assets into dollars. This led to a gradual depreciation of the dollar," said British economist Lyons.

AI a key driver

Looking forward, many research and market institutions expect the world economy to improve moderately in 2026 as countries become better adapted to the fallout from trade tensions, and hopes rise that the Ukraine conflict will end.

However, some are cautious on the outlook, citing potential challenges such as recurrent trade uncertainties, geopolitical tensions, climate change, and inflation.

Global growth is projected to decelerate from 3.3 percent in 2024 to 3.2 percent in 2025 and 3.1 percent in 2026, the IMF forecast in its report.

Consultancy EY-Parthenon forecast global growth will slow modestly in 2026, with real GDP rising 3.1 percent, compared with 3.3 percent in 2025 and 2024.

"Looking to 2026, we think … AI and innovation will stay robust, (but) export growth is subject to geopolitical risks, and the secular deflation trend is tough to end and (will) likely remain a drag," said Zhou of Oakcean Capital.

AI will continue to be the key growth driver. At the same time, slower inflation and weak jobs data are expected to kick-start an easing monetary cycle, providing a boost to the non-AI economy and consumers, she added.

The US economy will benefit from the AI innovation and investment boom in 2026. "This strong secular trend underpins the growth potential in the US," Zhou said. "The non-AI economy is struggling to grow, and consumers are facing the uncertainty of a slower job market."

Jan Hatzius, chief economist and head of Goldman Sachs Research, said in the Macro Outlook 2026:Sturdy Growth, Stagnant Jobs, Stable Prices report: "The US is expected to substantially outperform consensus estimates because of tax cuts, easier financial conditions, and a reduced drag on the economy from tariffs."

However, its tariff policy will continue to have an impact on the US economy, experts said.

"The US economy demonstrated continued resilience and benefited from pro-business policies, but the impact of tariffs has yet to feed through fully and has led to both uncertainty and sticky inflation," said British economist Lyons.

Palit of the National University of Singapore said: "The next year is going to be very crucial for the US economy because it will show what is the impact of the various trade deals that the United States has signed with various economies and whether those deals actually succeed in increasing exports from the US, improve its external balance, and push the growth of the American economy upward."

The upcoming US midterm elections will also be a political test for the administration's economic policies, he said.

The European economy will benefit from any peace deal in Ukraine, which, if inked, would start a reconstruction boom in parts of Europe, said Zhou.

"If we have a peace deal in 2026, that would lift the growth outlook for Europe," she said.

The EU's efforts to deregulate could also help the European economy, although the effect remains to be seen, she said.

The African economy, meanwhile, is set to register a high rate of growth in 2026, but the path ahead will be uneven, said an Economist Intelligence Unit report. While East and West Africa emerge as growth hot spots, debt distress, geopolitical tensions, and contested elections present ongoing risks, the report said.

"The current set of circumstances is positive for the continent. The challenge for Africa is around creating a substantial uplift in per capita GDP and breaking down borders via the much heralded African Continental Free Trade Area," said Satchu.

Xn Iraki, an associate professor at the University of Nairobi's Faculty of Business and Management Sciences, said the continent must solve problems such as chaotic politics and short-term strategies, to achieve sustained growth.

"Bad politics that drive corruption, the foreign power stranglehold on Africa and self doubt slow Africa's growth. Focusing on the citizens and their welfare, not the macros, could make all the difference. Like China, Africa should start playing the long game," he said.

China's role

After China registered 5.2 percent year-on-year GDP growth in the first three quarters of 2025, market watchers became more confident about its growth prospects in 2026, although they said challenges remained.

In October, President Xi Jinping met his US counterpart Donald Trump in Busan, South Korea, while they also had three phone calls throughout the year. The engagement of the top leadership led to de-escalation of trade tensions and created room for further improvement in bilateral economic relations in 2026, analysts said.

China could also reduce the impact of Sino-US trade conflicts through trade diversification, said Xn Iraki.

"China could weather the US tariffs by diversifying trade with East Asia and Africa and shifting to services and new tech, AI and electric cars," he said.

Palit said, "China's growth will probably remain at a stable level, but it might face some challenges."

China needs to adapt to the US tariffs moving into 2026, when their exact impact on its economy — as well as regional production networks and supply chains — will become clear, he said. The country should also pursue internal economic transformation to improve the efficiency of the economy, he added.

The annual Central Economic Work Conference was recently held to map priorities for economic policymaking in 2026, including measures to boost consumption, formulating and executing plans to raise incomes for urban and rural residents, and expanding the supply of high-quality goods and services.

The meeting also vowed to promote innovation and further reform and opening-up.

"We might not immediately see a very high rate of growth for the Chinese economy in line with the standards that the Chinese economy has been having," said Palit. "But … China will still continue to be one of the largest contributors to global economic growth."

Wang Xiaodong and Edith Mutethya in Nairobi contributed to this story.

Contact the writers at xinzhiming@chinadaily.com.cn