The world in 2025 will be a fully contested economic and geopolitical arena: business must be forward thinking, flexible and resilient

RiskMap 2025 | Nick Allan | Chief Executive Officer

The startling scale of Donald Trump’s victory in the US election presages a year of huge change and uncertainty. But this will not be a year without opportunity, far from it. The world remains globalised and economically interconnected. Avoiding turbulence is not an option.

Looking ahead to 2025, it is clear that many of the challenges once regarded as the long tail of the pandemic are here to stay. Talking to clients, many are still wrestling with a global political and economic picture that is messy, disjointed and fragmented. Layered on top are issues such as office attendance, productivity, inflation and the growth of cyber threats. A bruising 2024 has been the year that wishful thinking came to an end. Looking forward sometimes feels like being urged to drink a “hair of the dog” and stumble back into the bar for one more tequila and a possible brawl.

The coming year is set to be another where companies will be challenged to manage the volatile mix of geopolitics, economic competition, lawlessness and rapid technological change. With the uncertainty of the US election behind us, uncertainty surrounding the US’s role as a reluctant global power remains. Riven by domestic political tensions, the US is still the essential country that will have an outsize impact on most of the issues that business will face. Despite the competitive and fractured state of geopolitical relations, the world remains globalised and economically interconnected in ways that mean that avoiding turbulence is not an option.

Many people are tired of hearing the word “unprecedented” with regards to the current state of global upheaval and rightly so. A cursory study of world history would show that what was actually unprecedented was the stability of the so-called Pax Americana that followed the end of the cold war. The end of the Soviet Union and the period of US hegemony that has followed marked a rare interlude of geopolitical stability, particularly for Western countries. Normal service has now been resumed. For global businesses the world is and will remain complicated and divided; domestic concerns will be as relevant as international ones. The economic and geopolitical arena is now a fully contested space where nation states, global companies and indeed criminal networks compete for advantage. This is not a world without opportunity, far from it, and the skills of resilience, anticipation and flexibility remain the differentiators between success or a lack of it.

Disappointingly, it is hard to point to areas where the companies are going to find the going easier in 2025. Places where populism is in retreat, such as the UK, may look more stable than others but calmness and sanity in the midst of a riot can sometimes appear to be the opposite. The paradox for business is that fiscal prudence and increased taxes, that are needed to repair national finances following the pandemic, may well dampen enthusiasm for investment in the short-term. Indeed, it is notable that neither of the two major political parties in the US entered the election with any concrete plans to deal with the very real challenge posed by national debt. In many places politicians of all stripes will pursue short-term agendas at the expense of more long-term prosperity.

In the current era of nationalism, populism and short-term policy making there are some issues that stand out for business in the year ahead. The economic competition between China and major Western economies will come to the fore. Companies are now better placed to deal with the sanctions that have rolled out relentlessly but the year ahead is going to be one where secondary and third level sanctions evasion comes much more clearly into focus for many governments. Thrown into the mix are the growing tentacles of organised crime, facilitated by technology and aided by ungoverned or lightly governed spaces. Regulations now have a clear geopolitical edge to them and in some cases, and particularly in technology, corporates are being forced to choose their current and future allegiance.

And yet, despite that political upheaval, conflict and disruption of this past year we have also seen economic growth and an opportunity for many companies. The US economy has performed strongly and Japan has attracted high levels of FDI. Despite the headwinds caused by the real estate sector, China’s economy has grown and India looks set to be a star performer. The relentlessness of the past years has honed the resilience and risk management skills of many of our clients and driven an acceptance that a multi-polar, more complex world is here to stay. The conundrum that many firms face though, is to navigate through a change in the risk reward calculation and I believe that this is yet to mature, particularly in relation to emerging markets.

As the dominance of Western economies and institutions has waned in recent years the governance and economic agendas driven by this have also receded. Many emerging markets are adept at playing realpolitik and look to attract a diverse set of investors and use market access to lessen the pressure they might once have felt to enhance governance and transparency. In the short term this makes sense, but in the medium term, capital will shy away from markets where the risks are too high and the returns are not secure enough. This will be particularly true where the risk of US led economic sanctions or prosecutions can be foreseen. This might seem at odds with a global economic environment that seems less rules based and more open to geopolitical competition but despite the best efforts of some, the dominance of the US dollar remains the powerful tool that is has always been. Risk reward is at the heart of business decision making and firms are going to have to navigate this with greater precision in 2025. Growth will often be more easily found in markets where populations are growing and competition is sometimes weaker and, for many companies that have always been very global, it is going to feel like the pioneering days of yore.

Many times over the past year both clients and friends have commented that the current environment must be fantastic for a risk management firm such as ours. The reality is not so simple. As a firm we are always standing alongside clients to assist through difficult times, but much of what we do is about being with our clients when they are expanding and take advantage of opportunity. A world where the perception of risk is too high is a world where international firms are often reluctant to expand and explore and where they may sit on their hands to see which way the wind blows, or if the storm will subside. Risk is always changing and many companies are exposed to digital and technology risk to a greater degree at the same time as new technologies such as AI transform our experience of risk at sometimes bewildering speed. The challenge for our clients and ourselves is to anticipate change and be confident in different possible futures. Change is exciting, often daunting but it always throws up opportunity.

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