Recent studies show a positive outlook for the global economy. Growth is expected to be 3.3% in 2025 and 2026, though slightly lower than the past average of 3.7%. The U.S. economy is improving, but some other major countries may slow down.
Inflation may fall to 4.2% in 2025 and 3.5% in 2026. Advanced economies will likely recover faster than developing ones. These changes will affect how businesses manage their finances. Companies must prepare for shifts in interest rates, cash flow, and investor confidence.
2025 Global Economic Outlook and Its Impact on Financing Strategies
There are several ways the current global economic outlook will impact business financing strategies:
Borrowing Money Will Be More Expensive
Interest rates remain high because governments are trying to keep inflation under control. This makes it costlier for businesses to borrow money for expansion, hiring, or buying new equipment.
When borrowing becomes expensive, companies must think twice before taking loans. Instead of growing fast, they may cut spending and focus on essential expenses. Some may even reduce staff or cancel big projects to save money.
For example, New World Development, a major company in Hong Kong, expects to lose nearly $875 million partly because of high-interest costs on their debt. Companies like this must find ways to pay off their debt without hurting their business.
Businesses Will Save More Cash
When the future looks uncertain, companies hold onto their cash instead of spending it on growth. This is because having substantial cash reserves helps businesses survive during economic downturns.
To save money, businesses may:
- Delay hiring new employees
- Cut down on unnecessary expenses
- Avoid risky investments
Some businesses are even shutting down parts of their operations to save costs. For example, Petersham Nurseries had to close two restaurants and a deli because of rising expenses and lower customer spending. In tough economic times, cash is king. Businesses that manage their money wisely will have a better chance of staying afloat.
Companies Will Look for New Ways to Get Money
Since bank loans are expensive and investors are cautious, businesses are looking at other ways to get funding.
Some alternatives include:
- Private lenders– Companies borrow money from individuals or firms instead of banks.
- Short-term loans– Businesses take out smaller loans to cover immediate needs.
- Government funding– Some businesses can thrive with government loans. These have low interest but
they can be risky as well.
Private loans and short-term loans can have high interest rates, and government funding may not be available to all businesses.
Locked Interest Rates
There has been a great increase in interest rates in the last few years.
Many happened because of high inflation. No matter the reason, borrowing money becomes more expensive when interest rates go up. This can make it harder for businesses to invest, grow, or stay profitable.
When a company has loans, higher interest rates mean it has to pay more to keep up with its debt. This cuts into profits and can make it difficult to afford new projects. If a business has a lot of debt, it must plan ahead to avoid financial trouble.
Companies protect themselves by using financial tools like interest rate swaps. They don’t have to concern themselves with sudden increases since these tools can be used to lock a stable rate.
This allows them to manage their money better and avoid surprises when paying off loans.
Leverage Trade Agreements
When countries make trade deals, it becomes easier and cheaper for businesses to grow. These agreements often lower taxes on goods that are bought and sold between countries and remove rules that make trading difficult.
This way, businesses reach more clients without additional expenditures. For example, the United States-Mexico-Canada Agreement (USMCA) has made trade between these three countries more predictable and stable. Because of this, businesses have more confidence to invest in North America. Companies can take advantage of these agreements by sourcing materials from neighboring countries or expanding their operations across borders while benefiting from lower costs.
Understanding trade agreements can help businesses find new opportunities, save money, and make smarter investment decisions.
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