Financial risks and geopolitical uncertainty

Global financial markets in 2025 exhibit high volatility and rising uncertainty due to risks coming from geopolitical instability and trade uncertainty (see figure 1). Geopolitical instability has affected risk premiums and asset prices at the global level, due to the deep interconnections in the financial system. 

After a few decades of deepening and widening international agreements on finance, trade and economics, 2025 has witnessed the destruction of them. History repeats, and we are reminded of what happened back in the fifth century when the Roman Empire collapsed. Ancient Romans were traders and businessmen and cynically exploited their colonies to accumulate wealth and knowledge, leaving them free to prosper and pay taxes to Rome. An empire needs a political class able to perpetuate and stabilise its power, not to disseminate destruction. Historians agree that the Roman political class failed to accomplish these goals. After the collapse of the Roman Empire, geopolitical instability increased, local governments limited the freedom of people and implemented economic policies that reduced global trade, also with price restrictions. The Middle Ages followed the collapse of the Roman era and are often depicted as dark, poor and dull.

Mounting risks threaten global market stability

The introduction of unilateral trade restrictions in 2025 has rapidly destroyed the global trading system. Multilateralism has been replaced by bilateralism, with some countries leveraging their economic power to take advantage of their superior size. The adjustment to the trade restrictions among countries is uncoordinated and thus unable to guarantee a fair game with small losses.

Public debt and deficits compared to gross domestic product have not diminished in G20 members. They vary from 234% in Japan to 24% in Türkiye. Sovereign risk has risen due to higher premiums, and cuts to public spending are not popular – which further increases financial risks and volatility (see figure 2). While public actors are fuelling instability and uncertainty, private actors bear the costs of global economic instability (for example, due to supply chain disruptions). Private credit has grown along with public debts, especially in emerging economies, leading to a higher level of risk accumulation that can affect growth in the coming years.

High volatility and uncertainty in traditional financial markets disincentivise access for risk-averse investors, while risk lovers can accumulate higher risks and yields. In some markets there are signs of pricing inefficiencies due to the exploitation of privileged information and regulatory arbitrage.

Cyber finance and decentralised financial markets represent a small share of global markets and lack control and supervision. But they are probably the market segments with higher (and undisclosed) returns. 

Most G20 members have adopted a preventive and constructive approach to digital markets, but data standardisation has not been implemented, and market manipulation and insider trading are not infrequent. 

Unfortunately, the solution to the global economic issues still seems far off, given the lack of the political will to address them. G20 leaders at their Johannesburg Summit should act to reduce the geopolitical instability and trade uncertainty by strengthening mutual relationships, not only those at the bilateral level. These tasks are difficult to manage, but a few countries (such as Canada, Mexico and China) are paving the way towards a different global economic order.