World Stock Watch

Market Risks in 2025: Inflation, Interest Rates, and Geopolitical Tensions

As the world economy navigates the complexities of 2025, several key risks have emerged as major concerns for investors and policymakers alike. According to Nicolai Tangen, CEO of Norges Bank Investment Management, the world’s largest sovereign wealth fund, inflation driven by tariffs is one of the biggest market risks this year.

Tariffs: A Major Inflation Driver

Tangen warns that the ongoing trade tensions and tariffs imposed by various countries could lead to higher inflation, which could have far-reaching consequences for financial markets. “Many of the suggestions now coming out of the U.S. are potentially inflationary,” he notes. “They could cause more inflation. There could be less labor supply, there could be more tariffs — all of these things are driving inflation.”

Additional Risks on the Horizon

In addition to inflation, Tangen identifies several other key risks that could impact financial markets in 2025. These include:

• Higher for Longer Interest Rates: With central banks around the world grappling with the challenges of monetary policy, there is a risk that interest rates could remain higher for longer, which could have significant implications for borrowing costs and economic growth.
• High Levels of Government Debt: The rising levels of government debt in many countries pose a significant risk to financial stability, as high debt levels can limit a government’s ability to respond to economic shocks.
• Geopolitical Tensions: The ongoing tensions between major world powers could lead to increased volatility in financial markets, as well as disruptions to global trade and commerce.

Concentration in U.S. Equities: A Top Risk

Tangen also highlights the concentration of U.S. equities among large cap tech firms as a top risk. “This has never been bigger,” he notes, suggesting that the dominance of a few large companies in the U.S. stock market could lead to increased volatility and risk.

A Complex Landscape

As the world economy navigates these complex risks, investors and policymakers must remain vigilant and adaptable. By understanding the key risks facing financial markets, we can better prepare for the challenges ahead and make informed decisions to mitigate their impact.