Global Growth After 2025: Resilient, Reallocated — and Still Fragile

Against expectations of a hard landing, the global economy surprised in 2025 by holding together. Growth endured despite wars, supply-chain rewiring, and sharp monetary pivots. The real question now is not how the world avoided a downturn, but whether this resilience can be sustained as technology reshapes work, trade fragments further, and policy space narrows under debt and fiscal strain.

A resilient world economy — but with cracks beneath the surface

Global growth in 2025 defied pessimism. The U.S. economy expanded at a healthy pace, though headline GDP masked a slowdown in job creation, signalling late-cycle dynamics. China, meanwhile, delivered strength through record current account surpluses as global trade routes reconfigured, even as its domestic economy remained weighed down by real estate stress and cautious consumers.

Inflation cooled across advanced and emerging economies. In response, nine of the ten central banks overseeing the world’s most traded currencies cut interest rates, making 2025 the most synchronised monetary easing cycle since 2009. Yet this easing came with a caveat: public debt levels remain high, fiscal buffers thin, and political pressures intense.

Markets sprint ahead, powered by AI and liquidity

Financial markets surged well ahead of economic fundamentals. A weaker dollar and exuberance around artificial intelligence fuelled asset prices, raising concerns of overvaluation. While AI’s immediate impact on employment remains limited, its long-term transformative potential is undeniable.

Still, the reminder from the Nobel Prize in Economics was timely: innovation alone does not deliver growth. Sustained prosperity depends on three deeper foundations — useful knowledge that blends science with application, a skilled workforce capable of using it, and societies willing to absorb change. Without these, technology becomes spectacle rather than substance.

Trade, not recession: what global growth now looks like

Looking ahead to 2026, the global economy appears set for continued reallocation rather than outright contraction. Supply chains are shifting, trade patterns diversifying, and production relocating — but overall growth is likely to remain underwhelming compared to pre-pandemic norms. The world is adjusting to a lower-speed, higher-friction equilibrium.

India’s “Goldilocks” moment

Against this backdrop, India stands out as relatively well-positioned. Describing the economy as being in a “Goldilocks” phase, the Governor of the “Reserve Bank of India” highlighted balanced growth without runaway inflation. By December 2025, the RBI had cut the repo rate by a cumulative 125 basis points to 5.25%, complemented by liquidity support and regulatory easing.

Bank balance sheets strengthened further, with gross NPAs expected to bottom out at 2.3–2.5% by March 2026. Fiscal consolidation continued, alongside the rollout of the first National Monetisation Pipeline. An upgrade by “S&P Global Ratings” underscored growing confidence in India’s macroeconomic management.

Where India remains vulnerable

Yet resilience should not be mistaken for escape velocity. Output remains over 3% below pre-pandemic trends. Sovereign debt ratios are elevated, partly reflecting competitive pre-election transfers. Foreign direct investment remains below potential, portfolio flows are volatile, and capacity utilisation only modestly exceeds long-term averages — suggesting private firms remain cautious.

Despite success stories in electronics manufacturing and exports, and investments such as “Google”’s AI centre, a broad-based private capital expenditure cycle has yet to take off. Achieving high-income status would require sustaining around 8% real growth for two decades — a formidable challenge.

Who will finance the next phase of growth?

This is the central question. Household financial savings have softened as borrowing for housing and consumption rises. Corporates continue to deleverage rather than invest aggressively. While infrastructure spending and logistics reforms are advancing, incentives alone cannot unlock private investment.

What increasingly matters are softer constraints: policy credibility, regulatory predictability, and confidence in future demand. Without these, even well-designed schemes struggle to translate into jobs and factories.

Creative destruction — and its social costs

India’s task now is to embrace creative destruction while managing its consequences. Structural gaps persist in health, education, and urban development. Pollution is a stark example: India ranks among the world’s most polluted countries, yet clean air has not become a decisive political demand — unlike electricity, which eventually did.

Sectoral stresses, from aviation to urban services, raise deeper questions about the balance between public and private ownership, competition and concentration, and specialisation versus diversification.

Regions, technology, and the labour paradox

Regional divergence remains pronounced. Bihar, home to 9% of India’s population but under 2% of GDP, illustrates both challenge and potential. With a young population, low-cost labour, fertile land, and cultural capital, its growth hinges on better alignment between technology and demography.

Here lies India’s paradox: a labour-abundant country increasingly adopting capital-intensive technologies. India’s biggest gains may not lie at the technological frontier, but in deploying AI and digital tools across agriculture, logistics, healthcare, and public services.

Growth beyond innovation

India spends just 0.65% of GDP on research and files far fewer patents than China — but history shows that most growth miracles did not depend on frontier innovation. They scaled existing technologies through skills, firm capabilities, and institutions.

Sustained prosperity will require more than growth spurts. It demands institutions that harness change while protecting those displaced by it — labour markets that absorb workers, finance that supports long-term expansion, and governance that enables adaptation rather than resists it.

The lesson from two centuries of economic history is clear: growth endures when societies manage creative destruction with as much care as they pursue innovation. For India, aligning growth, technology, and labour institutions is no longer optional — it is the price of turning resilience into lasting prosperity.