Navigating Financial Risk in a Fluctuating Economy

The global economy in 2025 will be characterized by fluctuations in inflation, material costs and growth rates across different jurisdictions. Only organizations that can identify and manage these risks will be able to successfully navigate this challenging economic environment.

In our latest blog, we summarize the main financial trends and how organizations should respond to them.

Three economic trends to watch in 2025

The nature of modern business is that most companies operate internationally, whether that’s providing services to global consumers or doing business with third parties and suppliers in other countries. As a result, the current fluctuations in the global economy are a risk to international organizations. They need to monitor and respond to significantly diverging economies across different jurisdictions. Some countries are experiencing a period of growth, while others are seeing inflation spiral out of control. This could affect a company’s pricing strategy, the resilience of their supply chain, and ultimately their profit and loss.

In 2025, this is particularly clear in three main areas:

1. Mounting inflation

Inflation is high on the economic agenda, which has triggered steep increases in interest rates from the central banks in the US, EU, Japan, UK and other countries in recent years. More recently there has been good news in this area, as the International Monetary Fund (IMF) projects a fall in global inflation from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. However, this is likely to favor more advanced economies, which could widen inequality.

2. Cost of materials

The cost of goods is in a state of flux. Take the global price of industrial materials, for example. The IMF’s tracker shows swings in average prices from under $110 in April 2020 to nearly $205 in March 2022; then from $145 in October 2022 to $172 in May 2024. There have been similar fluctuations in the prices of metal, food and agriculture. While other industries such as technology have witnessed an almost continuous rise in prices, partly driven by shortages of supply.

3. Divergent patterns of growth

The OECD’s recent assessment projected global GDP growth at 3.2% in 2025, with significant divergence expected between jurisdictions. The US and some emerging markets are experiencing strong growth, while European economies are seeing slower progress. Growth rates in India and China are projected at 6.6% and 4.5% respectively in 2025, whereas Brazil and the US have more modest forecasts of 2.1% and 1.7% respectively.

MORE: How to successfully navigate and respond to today’s financial and geopolitical trends

Cost and opportunity: the impact of economic fluctuations on companies

What do these economic trends mean for organizations? Firstly, they expose them to several new financial risks and costs, including:

• Uneven consumer spending: Inflation affects the cost of doing business and the confidence of consumers in how much they will spend on goods and services. But it is overly simplistic to assume recent reductions in some countries’ inflation rates are a good thing. JP Morgan’s Global Co-Head of Research warned: “We think the decline in inflation and economic activity we forecast for 2024 will at some point make investors worry or perhaps even panic”.
• Increased company expenditure: Higher costs of materials mean it is more expensive for companies to develop their products and services. While variations in the costs of certain materials make it difficult for companies to gain certainty over their projected spending. This certainty is vital for companies when carrying out financial planning, pricing and budgeting for the year ahead, but this is currently hard–if not impossible–to acquire.
• Risk of over-concentration: With so much divergence in the projected fortunes of different economies in the coming year, there is an additional risk for companies who are weighted too heavily in a low-growth or high-inflation environment.
• Supply chain disruptions: These economic trends also affect a company’s third parties and suppliers. If a supplier is particularly reliant on an industry which has seen rising material costs, or their jurisdiction has experienced high inflation and low growth, their risk of going out of business is heightened. This could interrupt or halt one of your own products or services.

However, these trends also present an opportunity for companies who can best understand and predict economic trends and their impact on their jurisdiction and industry. These include:

• Strategic moves: If a company assesses growth and inflation projections using financial data and expert analysis from media data, it may be able to anticipate the most lucrative markets to target with its products and services. Entering new markets in a timely and strategic way could expand its customer base and improve its bottom line.
• Competitive pricing: In an era of uncertainty over the cost of materials and of doing business, it can be tempting to raise prices across the board in anticipation of them spiraling further. But if a company can understand industry and economic trends accurately and early, it can offer more competitive pricing than its more conservative competitors to win over new business.
• Supply chain resilience: The ultimate financial risk is going out of business, and during the COVID-19 pandemic many firms found their supply chains were devastated by bankruptcies. But gaining an accurate picture of the financial health of your suppliers allows you to anticipate how they would fare in a crisis, and to prepare alternative suppliers if necessary.

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