Mega forces shaping the 2025 economy

Artificial intelligence (AI), energy transition, and geopolitical fragmentation. These are some of the mega forces transforming today’s economy. As these shifts shape the global economy, there’s a need for investors and policymakers to adopt strategies and find opportunities for growth.
In this interview, Ben Powell, chief Middle East and APAC investment strategist for BlackRock Investment Institute (BII), discusses how these mega forces affect industries and position certain regions and sectors for outperformance. He also talks about the U.S. economy under the Trump administration and how it will likely affect the Middle East.

What is your outlook for economic growth and market performance across the Middle East in 2025?

We think economies and markets globally will be driven by mega forces or long-term structural shifts such as the rise of artificial intelligence (AI) and geopolitical fragmentation in 2025, as these forces transform industries and sectors.

In our view, economies and markets best positioned to benefit from the transformation stand to outperform. For example, we have a broad overweight to U.S. stocks for now, where we see the AI theme broadening beyond the tech sector. Yet, we see plentiful opportunities around the globe, including in the Middle East, where there is the opportunity for economies to benefit from younger populations, abundant natural resources, and a shift toward capital markets playing a more central role.

Read: Saudi Arabia’s non-oil economy records best performance since 2014 in January, says PMI

Today’s investment landscape is influenced by various mega forces, including continuing infrastructure development, AI, and energy transition. How do these forces particularly impact how investments are done?

For decades, economies followed stable, long-term trends. Investors could focus almost entirely on navigating any temporary deviations around those trends. Growth would eventually converge back toward its trend. However, the current environment is different. Economies around the globe are being transformed by mega forces or long-term structural shifts like the rise of artificial intelligence, geopolitical fragmentation, the low-carbon transition, and diverging demographics. These forces could continue to shift the long-term trend, making various outcomes possible.

This fundamentally different landscape upends the nature of investing, in our view. We think investors can find opportunities by tapping into the waves of transformation we see ahead in the real economy, with AI and the low-carbon transition requiring investment potentially on par with the Industrial Revolution. We see capital markets playing a vital role, as these mega forces drive a broad infrastructure buildout.

We also think investors should focus more on themes and less on broad asset classes, as mega forces reshape whole economies. With no stable long-term trend and an ever-evolving outlook, investors may want to reconsider what a neutral asset allocation is and put more weight on tactical views since investors cannot rely on eventual convergence back to historical trends. Being more dynamic with portfolios and getting granular with views are both essential.

Can you share specific examples in the Middle East of how these forces impact the investment landscape? Which do you think is driving the biggest change and why?

Saudi Arabia provides an example of a country at the confluence of mega forces. The nation is seeking to leverage its abundant natural resources and youthful workforce to attract global investment and diversify its economy under Vision 2030. The IMF projects that Saudi Arabia’s

GDP growth will reach 3.3 percent in 2025, compared to 1.4 percent in 2024. Unlike many developed economies, we think Saudi Arabia benefits from low debt levels, ample energy resources, and a young, expanding workforce — a combination that supports long-term economic growth and creates opportunities in infrastructure and urban development. However, realizing these opportunities hinges on sustained investment.

The ambitious Vision 2030 plan seeks to unlock Saudi Arabia’s potential by fostering a more diversified economy. Meeting these aspirations and drawing in foreign capital will likely require substantial reforms across governance, regulatory frameworks, labor markets, and societal norms.
The Shareek program, launched in 2021, aims to catalyze private investment, targeting $1.3 trillion in funding — 40 percent of the Vision 2030 goal. Foreign direct investment, currently a small share of GDP, is also targeted to reach 15 percent of Vision 2030’s total investment.

Global investors will also need confidence in regional stability before committing significant capital. Growing investment in Saudi Arabia presents substantial opportunities across public and private markets, in our view.

If the U.S. Federal Reserve begins cutting interest rates this year, how will it affect Middle Eastern markets?

We see persistent inflation pressures in the U.S., stemming from rising geopolitical fragmentation alongside spending on the AI buildout and the low-carbon transition. We also think an aging population combined with slowing immigration means the workforce will grow more slowly, resulting in higher wage pressures. Altogether, these things are likely to keep inflation above the Fed’s 2 percent target.

As such, we don’t think the Fed is embarking on a typical cutting cycle but rather a finetuning of policy. We think it will cut further in 2025, and growth will cool a little. However, with inflation still above target, the Fed won’t have room to cut much past 4 percent, leaving rates well above pre-pandemic levels.

With the U.S. now under the Trump administration, how might his policies on trade, energy, and geopolitics influence investment sentiment and strategies in the Middle East?

Trade — and particularly tariffs — will be a central focus of the new U.S. administration. If blanket, across-the-board tariffs were to be implemented, that could disrupt global trading patterns, though the new administration may ultimately take a more nuanced approach and could leave the door open to negotiated deals.

We think multi-aligned and “connector” countries will benefit from global supply chain diversification, even with more uncertain U.S. policy. Countries that are heavily reliant on oil revenue, like Saudi Arabia, are more vulnerable to shifts in global energy markets. A decline in oil prices — potentially influenced by increased U.S. production or a slowdown in global demand — could challenge the country’s reform agenda and economic resilience.

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