Target Global on 6 Economic Risks to Watch in 2025

With conflicts raging in regions once considered stable, dramatic political shifts in the United States and the European Union, and pervasive macroeconomic uncertainty hanging over it all, it’s clear that the world is beset by uncertainty right now.

This isn’t news to venture capital firms like Target Global, which invests in early-stage companies across a range of sectors and geographies. However, as sophisticated investors whose livelihoods depend on maintaining a balanced perspective amid an onslaught of confusing, often contradictory information, they understand that the world is not black and white.

For example, contrary to what non-experts might expect, many Target Global portfolio companies based in the Middle East and GCC regions have done exceptionally well since the October 7 attacks and subsequent war between Israel, Hamas and Hezbollah.

“So many of our portfolio companies have not only survived this tremendously challenging period, but thrived,” says Target Global’s Dana Bublil.

Here’s what investing pros like Bublil and the rest of the Target Global team are watching on the economic front this year and beyond.

1. The Interest Rate Reset That Wasn’t

Twelve short months ago, it was widely assumed that the Federal Reserve Bank of the United States — the world’s most important central bank — would rapidly cut interest rates through 2024 and 2025.

The Fed did trim rates in 2024, down to a range of 4.25% to 4.50%. However, analysts now expect a further 0.50% cut in 2025, at most, and some believe the Fed may be done cutting until further notice.

This is unwelcome news for U.S. businesses and consumers looking forward to cheaper money. It’s likely to have ripple effects across the wider global economy as well. 

The silver lining, if there is one, is that the European Central Bank now appears poised to cut its own benchmark rates more in an effort to bolster the bloc’s economy. This could create some opportunities for Europe-based businesses as well as outside enterprises looking to expand on the continent, Bublil says.

2. Policy Uncertainty in the Global North

United States policymakers hope to pass a major tax code overhaul in 2025 that would, among other things, lower the U.S. corporate tax rate — one of the world’s highest — from 21% to 18%.

However, it’s too early to say for certain what will make it into the final package, nor what “pay fors” will be needed to balance its budget. Should policymakers offset the corporate and high-earner tax cuts with reductions to social programs like Social Security and Medicaid, the wider U.S. economy could suffer.

This raises the possibility of a broader, policy-induced slowdown. As financial lawyer Gavin King quips: “When America sneezes, the rest of the world catches a cold.”

3. New (And Reignited) Trade Tensions

U.S. policy could also impact global trade flows and raise the cost of imports and exports around the world. The new administration has maintained a range of tariffs imposed by the previous administration, mostly on goods made in China, while imposing or threatening to impose others (ranging from 10% to 25%) on “friendly” trading partners. Those partners have threatened to impose reciprocal tariffs of their own.

If these levies persist, business investment may decline broadly in affected countries, affecting global economic growth. At the same time, opportunities for “re-shoring” of manufacturing operations may arise in North America and the European Union. The business community will need to be vigilant and nimble to mount an effective response.

4. A Double-Edged AI Sword

We can’t talk about the economic outlook for 2025 without discussing artificial intelligence. Some “AI bulls” believe the first proper “general intelligence” models will arrive this year. Even if they’re a bit early on that prediction, the direction of travel is clear.

More important still for the business community is the wave of investment in AI-related infrastructure, such as data centers, processing units, and power systems. According to estimates reviewed by the MIT Sloan School, AI could boost global GDP by anywhere from $7 trillion to over $25 trillion in the near future.

Yet AI could also affect up to 40% of professional jobs, creating widespread social problems that may affect the wider economy. Perhaps a super-smart AI model of the future will help us tease out the actual cost-benefit here, but for now, we’re heading into the unknown.

Fortune Favors the Prepared in 2025

The global economic outlook is likely to grow more uncertain, and more volatile, in the year ahead. This raises the threat level for billions of consumers and businesses, of course, but also creates opportunities for those willing to take calculated risks.

In other words, fortune is likely to favor the (very well) prepared in 2025, and perhaps beyond. Plan accordingly.