Making the Green Transition Work for People and the Economy 2025

1.1 The world is undergoing significant economic and geopolitical shifts Global geoeconomic diversification and technological transformations are disrupting established patterns of trade, growth and development, impacting socioeconomic outcomes. Shifts in the international geoeconomic order are reconfiguring globalization and trade, with the EU, US and China expanding industrial incentives by 465%, 518% and 84% respectively over 2017-2023, 1 and a sharp rise in bilateral trade agreements over the last three decades.2,3 These dynamics are spurring broader supply chain shifts around energy, raw materials, and manufacturing in both emerging and advanced economies, reinforced by factors such as conflict-driven energy security concerns 4 and technological transformations, including AI and automation. 5,6,7,8 The ultimate socioeconomic impact of these shifts is likely to be complex, depending on national economic and development priorities. In developed countries, competition from emerging industrial players may intensify economic challenges with affordability impacts for consumers. In developing economies that rely on export markets to sustain growth, development prospects may take a different shape, and labour-intensive exporting industries may witness direct impacts on employment and income generation.After the largest inflationary episode of the past 50 years, the global economy may be set for a new cycle of higher inflation and cost of capital. In 2022, global inflation peaked at 8.6%, 9 with production and consumption patterns disrupted by the pandemic, Russia’s invasion of Ukraine, and a surge in state-led investment in many advanced and emerging economies, in part driven by rising defence spending. 10,11,12 Inflation has subsumed since then and is expected to be at 4.2% globally in 2025, still higher than throughout most of the 2010s. Global monetary policy trends have generally tightened over recent years, as central banks are confronted with inflation driven by key global trends, 13 including trade and supply chain disruptions. This, in turn, can affect fiscal space and public debt sustainability, as well as drive up investment costs for the private sector, impacting the economic sustainability of projects and ventures. Concerns over debt servicing are particularly acute in developing economies and come into tension with wider socioeconomic priorities: in 2024, developing countries paid $25 billion more to external creditors than they received in new disbursements. 14 6 Making the Green Transition Work for People and the Economy