The International Business Cycle

Syllabus Topic

HSC Topic One - The Global Economy

Globalisation and economic development

• the international business cycle.

The global economy is navigating a period of cautious recovery and structural transformation. Following years of pandemic-induced disruptions, inflationary pressures, and geopolitical instability, the international business cycle remains a vital framework for understanding how economies expand and contract in a globally interconnected system.

Global Growth Trends

According to the United Nations’ World Economic Situation and Prospects 2025, global GDP growth is projected to remain at 2.8%, the same as in 2024. This is below the pre-pandemic average of 3.2%, reflecting persistent challenges such as high public debt, weak investment, and subdued productivity growth.

According to the International Monetary Fund, advanced economies are expected to grow at a modest 1.6%, while emerging markets and developing economies are projected to expand by 4.2%. India and Indonesia are leading the charge in Asia, with India forecast to grow at 6.8% in 2025, driven by strong domestic demand and digital infrastructure investment.

Divergence in the International Business Cycle

The international business cycle refers to the fluctuations in economic activity that occur across countries, often in a synchronized manner due to trade, investment, and financial linkages. However, this synchronization is weakening. The IMF notes a growing divergence between major economies. The United States, for example, has seen upward revisions in its growth forecast due to resilient consumer spending and a strong labour market. In contrast, the eurozone is grappling with stagnation, with Germany narrowly avoiding recession and France experiencing sluggish industrial output.

China’s economy, while still growing, is facing structural headwinds. Its projected growth rate of 4.5% in 2025 is below historical norms, reflecting a slowdown in property investment and demographic pressures. Meanwhile, Latin America and Sub-Saharan Africa are experiencing uneven recoveries, with commodity-exporting nations benefiting from higher global prices but facing inflationary risks and currency volatility.

Key Drivers of the Cycle

Several factors are shaping the current phase of the international business cycle:

• Monetary Policy: Central banks in advanced economies have begun cautiously lowering interest rates after aggressive tightening in 2022–2023. The U.S. Federal Reserve has signalled two rate cuts in 2025, aiming to support growth without reigniting inflation.
• Geopolitical Tensions: Conflicts in Eastern Europe and the Middle East continue to disrupt energy markets and trade flows, contributing to uncertainty and supply chain realignments.
• Green Transition: Investment in renewable energy and climate-resilient infrastructure is accelerating, particularly in Europe and parts of Asia, creating new growth sectors but also transitional challenges for fossil fuel-dependent economies.

Conclusion

The international business cycle reflects a world in transition—marked by uneven recoveries, policy divergence, and structural shifts. While global growth remains positive, the lack of synchronization among major economies suggests a more fragmented and complex global economic landscape. For policymakers and businesses alike, understanding these dynamics is essential for navigating the next phase of global economic development.

Sources

- United Nations, World Economic Situation and Prospects 2025 – https://desapublications.un.org/publications/world-economic-situation-and-prospects-2025

- International Monetary Fund, World Economic Outlook April 2025 – https://www.imf.org/en/Publications/WEO

- World Bank, Global Economic Prospects January 2025 – https://www.worldbank.org/en/publication/global-economic-prospects

- OECD Economic Outlook, Interim Report March 2025 – https://www.oecd.org/economic-outlook

- Reserve Bank of Australia, Monetary Policy Decision – May 2025 – https://www.rba.gov.au/monetary-policy/int-rate-decisions