Recession Risk & Global Economic Resilience
As of late 2025, the world economy stands at a critical inflection point: while macroeconomic risks have materially increased, a global recession is not the base case for many leading institutions. According to the International Monetary Fund (IMF), persistent uncertainty from geopolitical tensions and tightening financial conditions has elevated risk premia, yet strong private sector adaptability and healthy corporate margins continue to support a relatively resilient growth path.
The IMF’s April 2025 World Economic Outlook assigns nearly a 30% probability to global growth falling below 2 percent, a non-trivial warning. However, this does not translate into an expectation of a deep, protracted global downturn. The Fund projects growth of 3.2% in 2025 and 3.1% in 2026, reflecting what it calls a “critical juncture” rather than a systemic collapse.
Independent risk assessments reinforce this tempered fear. S&P Global’s global composite output index, derived from purchasing managers’ surveys, recently slipped to 50.8, its weakest mark in over a year — an indication of slowing momentum, though not outright contraction. Meanwhile, J.P. Morgan Research has revised down its recession odds to 40% for 2025, signaling that some of the previously feared downside scenarios are now viewed as less likely.
What explains this surprising resilience? According to IMF analysis, private sector adaptability has been a key factor. Firms globally have front-loaded imports, rebuilt inventories, and strengthened supply-chain structures—each of which cushions the real economic impact of shocks. Added to that is a surge in private investment in artificial intelligence, especially in the US, which continues to power growth via higher productivity and more favourable financial conditions.
Nevertheless, the financial stability backdrop is less sanguine. The IMF’s Global Financial Stability Report (April 2025) flags three core vulnerabilities: overvaluation in key asset markets, high leverage in certain financial institutions, and sovereign debt distress in highly indebted nations. These conditions amplify the risk that a negative shock (e.g., policy error or geopolitical escalation) could trigger a volatile repricing of risk.
The OECD’s 2025 Economic Outlook offers a complementary perspective. Their interim report notes that, despite strong growth in certain large economies, elevated uncertainty and geopolitical fragmentation continue to cloud the longer-term outlook. In this context, the WEF’s Global Risks Report points out that over half of chief economists surveyed believe the global economy is more likely to weaken than strengthen in the near term, citing greater protectionism, weaker institutional trust, and policy instability.
Policy implications emerging from this research-driven picture are multifaceted:
Prioritize buffer rebuilding: Governments should restore fiscal space through credible medium-term frameworks, allowing them to respond to future shocks without destabilizing markets.
Stress-test for systemic risks: Supervisors and central banks need forward-looking stress tests incorporating geopolitical, trade, and financial tail risks.
Support private adaptive capacity: Public incentives for supply-chain diversification and technology adoption (e.g., AI) can reinforce resilience across sectors.
Strengthen global cooperation: Reducing trade policy uncertainty and enhancing multilateral dialogue will be critical to maintaining investor confidence and preventing policy-driven downturns.
In summary, while recession risks are materially elevated in 2025, the global economy’s current outlook is better described as fragile but resilient. The private sector’s adaptive capacity, combined with cautious but proactive macro policy, offers a credible defense — though it remains vulnerable to shocks.
International Monetary Fund, 2025. World Economic Outlook, October 2025: Global Economy in Flux, Prospects Remain Dim. IMF.
International Monetary Fund, 2025. Global Financial Stability Report, April 2025: Enhancing Resilience amid Uncertainty. IMF.
International Monetary Fund, 2025. Annual Growth and Risk Assessment. In IMF World Economic Outlook.
Organisation for Economic Co-operation and Development (OECD), 2025. OECD Economic Outlook, Interim Report March 2025: Steering through Uncertainty. OECD Publishing.
J.P. Morgan Research, 2025. What Is the Probability of a Recession? J.P. Morgan Insights.
World Economic Forum, 2025. Global Risks Report 2025: A World of Growing Divisions. WEF.