Will 2025 reaffirm dollar’s dominance in second Trump era?

The balance of global power is set to experience significant changes this year, especially in the economic space, due to the cumulative shifts over the past three years and anticipated developments on the horizon. Countries are already bracing for these changes, preparing at the national and regional levels to adapt.

In the US, the incoming administration is pursuing economic gains at the expense of other nations through a combination of regulatory and diplomatic maneuvers. These include altering trade laws, redistributing financial contributions within alliances, and even provocative measures such as reportedly mulling the occupation of Greenland, a Danish territory.

Denmark has responded with protectionist measures, while President-elect Trump even extended an invitation to Canada to join the federation as the 51st state to avoid high tariffs. This suggests it could lead to some economic gains for the US that could strengthen its position.

Meanwhile, China is trying to establish new trade and financial alliances to mitigate the expected decline in relations with Washington, particularly with Middle Eastern countries and Russia. With the end of the war in Ukraine and the lifting of sanctions, Russia is set to experience a recovery, which could benefit China's strategy.

However, Beijing's efforts may face challenges due to its strained relations with India, a fellow member of the BRICS group, which itself is experiencing tensions. India recently stated it has ‘no interest in weakening the dollar’, a position that seems to align with preparations for Donald Trump's second term.

Trump has vowed to defend the dollar and maintain its dominance in international transactions.

As for the European Union, it will be the most affected by these changes, as the economies of member states have suffered over the past three years due to the repercussions of the Russia-Ukraine war more than others. This conflict has taken a heavy toll, both through the rising costs of importing oil and gas and the significant financial aid provided to Ukraine.

These challenges have led to increased deficits and the bankruptcy of thousands of businesses across EU countries, while President Trump is expected to push for an increase in the EU's contribution to NATO's budget.

As a result, the European economic outlook appears challenging for member states in the coming year. France’s budget deficit has surpassed 5%, according to French Minister of Finance, and its debt has climbed to over 112% of GDP. All of which signals potential crises for France, while in Germany the growth rate will be less than 1%. The governor of the French central bank has emphasized the need to ‘reform the country’s finances’.

In the Middle East, the economic landscape remains uncertain and hinges on the resolution of ongoing political conflicts. Economic conditions are expected to vary across the region, with North African countries likely to maintain stable growth due to political stability and sustained oil prices.

These factors will play a crucial role in shaping the fortunes of oil exporting and importing nations in the region.

In the Eastern Mediterranean and Western Asia, the political and security instability will have substantial economic repercussions, despite the expected recovery of some economies. However, Lebanon, Syria, Palestine, and Israel will face major economic challenges, and their ability to recover will depend on how effectively they navigate the 2024 crises.

The damage sustained in the previous period requires substantial efforts and financial resources to address, along with crucial foreign aid to help rebuild their economies.

Meanwhile, Iran will need to reassess its strategies to safeguard its commercial and financial relations, particularly concerning its oil and gas exports, which remain vulnerable to additional sanctions from the incoming US administration.

In contrast, the GCC countries are expected to experience continued progress due to their successful management of flexible economic and political policies with regional and international partners. This progress, coupled with the anticipated stability of oil prices, positions them well for growth.

This year, the GCC countries are projected to achieve growth rates between 3.5-4.5%, placing them among the highest globally, alongside China and India. This impressive growth reflects their ability to adapt to new challenges, which is key for maintaining stability and ensuring continued development.