As we look ahead to 2025, several significant risks loom on the horizon, threatening to reshape the global landscape and affect businesses across all industries. Let’s now identify and dissect five major risk predictions that warrant careful attention.
Cybersecurity Risk
The online world continues to evolve at an unprecedented pace. While digitization provides great efficiencies and unlocks new markets, it also brings new vulnerabilities and challenges. Cybersecurity will remain a top concern for companies across all industries, as increasing reliance on online systems makes businesses more vulnerable to cyberattacks.
Cristian deRitis
Data privacy and protection will be critical issues as companies navigate complex regulations and attempt to ensure the secure handling of personal and sensitive information. Societies, moreover, will continue to debate the ethical implications of adopting emerging technologies and the potential fallout from automation, job displacement and the use of artificial intelligence.
The speed of development and the limited ability of governments to control experimentation and AI adoption present significant challenges, as companies will feel pressured to move quickly. The rapid advancement of AI and quantum computing will also introduce new obstacles that conventional security measures may find difficult to address.
Cyber risks, moreover, are becoming increasingly associated with geopolitical threats, with state-sponsored cyberattacks (targeting critical infrastructure) replacing traditional espionage. Ransomware attacks will be top of mind as they become more sophisticated and difficult to defend against, with criminals leveraging generative AI to make their spoof emails and phone calls appear credible.
Organizations will face increased pressure to strengthen their digital defenses and implement “zero-trust” security architectures. Reports of vulnerabilities in software operating ports, Wi-Fi routers, and even air fryers highlight the need for businesses, households and government agencies to prioritize these invisible threats.
Deglobalization and Supply-Chain Risks
Deglobalization – or reduced international trade, investment and immigration – will gain momentum in 2025 as countries like the United States introduce tariffs and respond to protectionist policies. Businesses will consequently need to cope with potentially increased input costs, supply-chain disruptions and reduced market access for their products and services. More broadly, as countries focus inward and become less collaborative, deglobalization could lead to diminished global economic growth and stability.
Companies will need to adapt to this changing landscape by reorganizing and diversifying their supply chains to favor regional and local networks. They will also need to be particularly sensitive to strategic resource nationalism that could cut off access to critical materials, like lithium, and technologies, such as semiconductor manufacturing. In addition to investing in local production capabilities, firms will explore new markets to make up for the loss of trade because of protectionist policies.
Even companies with limited exposure to international trade and tariffs must prepare for the prospect of rising inflation, slower economic growth and currency fluctuations resulting from diminished trade and higher prices. The higher cost of essential goods and services could pinch household budgets, leading to reduced spending. Should inflation rise due to tariffs, higher interest rates resulting from tighter monetary policy could further limit economic activity.
Insurance and Climate Risks
The increasing frequency and severity of natural disasters due to climate change will pose challenges for insurers, which must adapt their risk models and pricing strategies to account for these events. Intensifying storms threaten coastal real estate and infrastructure, while wildfires, droughts and floods could disrupt agricultural production in key regions. To mitigate these risks, companies will need to invest heavily in supply-chain resilience and diversification.
Concurrently with changes in the physical environment, the insurance industry is experiencing substantial transformation, driven by technological innovations and evolving customer expectations. Insurers will also need to adjust to rapid changes in the regulatory environment, as legislators respond to demands for improved consumer protection and concerns about insurance availability and insurance company solvency.
In 2025, insurers are therefore expected to leverage data analytics, AI and other innovative technologies to enhance their underwriting processes, improve risk assessment and offer more personalized products. They’ll also need to better account for climate change.
Climate-related risks will profoundly affect property markets and local economies as insurers, unable to adequately price for risk due to regulatory constraints, retreat from high-risk areas. Without institutional changes, uninsurable properties could see their property values plummet as mortgage lenders retreat.
Gaps in coverage could lead to the widespread adoption of new products. Parametric insurance, for example, offers pre-specified payouts based on directly observable trigger events like windspeed or water level, rather than individualized loss assessments that add time to the claims process. As they seek to address weaknesses in the insurance market, governments and businesses may favor quick adoption of such innovations.
What’s more, although the enthusiasm surrounding international efforts to reduce carbon emissions to reduce climate risk has waned in recent years, transition risk remains a relevant issue. Indeed, some countries and local communities remain committed to reducing emissions through carbon taxes, tariffs and other regulations. The falling cost of alternative energy and steadfast consumer demand will likely move companies toward adopting clean technologies, independent of government mandates.
Regulatory and Compliance Risks
Regulatory changes are constant in the business world, and 2025 will be no exception. Companies across various industries need to monitor and comply with evolving laws and regulations, especially those related to data privacy and protection, environmental standards and financial reporting requirements.
Diverging rules and regulations across major economies, combined with the lack of coordination across continents, could expose multinational corporations to costly litigation. To ensure compliance, companies will need to review new accounting directives continuously and stay abreast of evolving reporting requirements for financial disclosures.
Even as new administrations in the U.S. and other countries promise to reduce regulatory burdens, financial institutions will face unique challenges. New regulations related to crypto assets and decentralized finance, for example, are likely.
The increasing complexity of regulations will require businesses to invest in robust compliance programs and leverage technology to streamline their processes. Large technology platforms, however, may encounter significant obstacles, particularly with respect to privacy and cybersecurity issues.
Investors also anticipate that the change in administration in the U.S. will lead to an increase in mergers and acquisitions. But risk managers should proceed with caution on M&As, because of growing concerns about business consolidation and pricing power.
Companies that proactively engage with regulators and adopt best practices in compliance will be better positioned to navigate these challenges and mitigate potential risks.
Debt
Debt levels have been rising globally, and this trend is expected to continue into 2025. High levels of public and private debt pose significant risks to economic stability and growth.
Governments and businesses will need to manage their debt levels carefully to avoid potential crises. The low-interest-rate environment during the COVID-19 pandemic encouraged borrowing and economic activity, but now concerns about sovereign debt sustainability in the long term have been heightened, as governments deal with the consequences of higher debt expenses.
Corporate debt is vulnerable to interest rate increases, especially for highly leveraged companies. Although issues with commercial real estate are well known – as loans mature into an environment marked by higher interest rates, high vacancy rates and low rent growth – the default risk of CRE loans backed by office properties remains high.
Consumer debt is less of a macroeconomic threat, since credit has grown in line with household incomes. In addition, middle- to higher-income U.S. households took advantage of low interest rates during the pandemic to lock in low monthly mortgage payments.
Nonetheless, rising interest rates add to the financial burden of new loans and variable-rate products like credit cards. Indeed, rising rates could drive default rates higher and restrict spending, particularly for lower-income households.
The increasing complexity of financial markets and instruments, such as the rise of private credit, can make assessing and managing debt-related risks challenging. To overcome these obstacles, companies will need to adopt prudent financial management practices, diversify their funding sources and maintain strong balance sheets.
Rising Exponential Risk
The identified risk trends are challenging individually. But we are also in a period of "exponential risk," where risks are interconnected and can amplify each other significantly. In this period, a single risk can activate and escalate other risks within and beyond individual businesses and governments.
Business success will hinge on the capacity to manage these interconnected challenges while preserving operational resilience and adaptability. Companies may address this era of exponential risk by using predictive analytics, by continuing to innovate, and by keeping resilience top of mind.
Parting Thoughts
The specific evolution of risks in 2025 is unknown, but volatility over the next year is certain. Global economic tensions, technological disruption and changing trade patterns will all contribute to increased market volatility.
The adoption of tariffs and regulatory changes in major economies will undoubtedly create financial pressures. Companies and investors should therefore prepare for potential market corrections and currency fluctuations.
In the long term, shifts in global power dynamics could result in regional tensions and economic uncertainty. Competition for resources, technological advancements and strategic influence may increase, affecting international trade relationships and investment patterns. Businesses will consequently need to navigate these shifting political landscapes carefully.
The increasing rates of automation and AI implementation, moreover, are likely to cause substantial disruptions in the labor market. As traditional roles become obsolete, industries may encounter significant skills gaps, while newly-created positions demand advanced technical proficiency.
To prepare for potential risks in 2025, organizations should develop comprehensive risk management strategies that address multiple scenarios. They will need to invest in technological infrastructure and cybersecurity capabilities, build resilient and adaptable supply chains, and strengthen stakeholder relationships. Furthermore, investment in reskilling initiatives and adaptation to new working methodologies will be necessary to remain competitive.
While there are many potential challenges tied to these predictions, they also present opportunities for organizations that are prepared and capable of adapting to changing circumstances. Success in 2025 will rely on businesses' ability to anticipate and respond to these evolving risks while maintaining operational efficiency and innovation.
Cristian deRitis is Managing Director and Deputy Chief Economist at Moody's Analytics. As the head of econometric model research and development, he specializes in analyzing current and future economic conditions, scenario design, consumer credit markets and housing. In addition to his published research, Cristian is a co-host of the popular Inside Economics Podcast. He can be reached at cristian.deritis@moodys.com.
Topics: Financial Markets
