The Reserve Bank of India (RBI) has stated in its latest annual report that the global economic outlook for 2025 and 2026 remains clouded by multiple challenges: the pace of disinflation losing momentum; elevated public debt across several economies; protracted geopolitical tensions; heightened trade tensions; financial market volatility; and climate shocks. The global economy is projected to grow by 2.8 per cent in 2025 and 3.0 per cent in 2026 (3.3 per cent in 2024). The growth in EMDEs is projected at 3.7 per cent in 2025 and is expected to improve marginally to 3.9 per cent in 2026. The growth rate in AEs is projected to decelerate to 1.4 per cent in 2025 from 1.8 per cent in 2024, before marginally improving to 1.5 per cent in 2026.

RBI noted that global inflation is expected to moderate from 5.7 per cent in 2024 to 4.3 per cent in 2025 and further to 3.6 per cent in 2026. High levels of public debt in major AEs and EMEs are raising concerns around the sustainability of public finances in these economies and run the risk of adding to already heightened financial market volatility. Elevated sovereign debt levels in systemic economies are already leading to spikes in risk premia and yields. Stretched asset valuations, with capital flows chasing yields, could lead to tightening financial conditions, thereby raising financial stability concerns as evidenced by episodic sell- off pressures in global equity markets during 2024.

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