The coming year stands to be a turning point in global affairs. Seismic shifts across political, economic, and social landscapes will converge to create a volatile and unpredictable environment. From escalating great power rivalries to the persistent ripple effects of climate change, from groundbreaking technological disruptions to the deepening divides within and between societies, 2025 promises no shortage of challenges and opportunities.
This year’s risk outlook contains our Top 5 Themes, Top 5 Risks, and Top 5 Wildcards. Each details the potential trends and challenges that are likely to define 2025. This post details PRISM's Top 5 Risks to watch in 2025. View our Top 5 Themes and come back for our Top 5 Wildcards.
Welcome to the crossroads of risk and resilience. Let us explore what 2025 has in store.
TOP 5 RISKS FOR 2025
JAPANIFICATION OF CHINA
China’s economic challenges are mounting. The debt crisis, deflation, demographic challenges, and an inability to boost domestic demand are starting to look eerily like Japan in the 1990s. In 2025, China risks facing a deflationary spiral that endangers its economy and threatens to disrupt global supply chains.
As Beijing grapples with slowing domestic demand, overcapacity is hitting global markets and will have ripple effects on global supply chains through trade partner reactions or supplier failures. A devalued yuan, potentially deployed to boost exports, would double trade tensions already high from Chinese overcapacity.
If something breaks, supply shortages in key industries—from critical minerals to consumer electronics—could emerge as firms struggle back production or shutter entirely in the face of dwindling profitability. In the short term, this could prove an advantage for importers from China, seeing many cheap, high-quality goods available. However, companies with deep dependencies on Chinese suppliers will face the dual challenge of price instability and potential geopolitical frictions as Western nations respond with protectionist measures, alongside the potential for an economic collapse that threatens suppliers.
RE-INFLATION
In 2025, the risk of a new wave of inflation – echoing the 1970s – looms as geopolitical instability, resource constraints, and populist economic policies converge. Despite inflation trending down, it remains stubbornly above target across leading economies, leaving central banks in a bind. With growth slowing and political pressure mounting, policymakers are signaling rate cuts to stimulate demand, even as underlying inflationary pressures persist. The situation led asset manager Apollo to put as high as a 40% chance of the United States Federal Reserve increasing interest rates in 2025 instead of the continuous rate hikes markets currently expect.
Key drivers of this reflation risk include renewed trade protectionism, exemplified by potential Trump-era tariff escalations, which could raise input costs across global supply chains. Simultaneously, energy markets remain volatile, with ongoing conflicts in the Middle East and Eastern Europe threatening oil supply and reinforcing the risk of commodity-driven price shocks. A deglobalization trend—accelerated by reshoring and friend-shoring—adds further inflationary pressure, driving higher production costs.
For supply chain leaders, 2025 could mark the return of volatile pricing and margin compression, particularly in sectors reliant on imported goods and raw materials. The imperative will be to hedge commodity risks, build regional supply networks, and engage in dynamic pricing strategies to buffer against inflation’s resurgence.
NEW CONFLICTS AMID A GLOBAL LEADERSHIP VACUUM
The global rules-based international system sounds like something out of a textbook in International Relations 101. But its unraveling has real implications for the conflicts. We have already seen the crisis multiply due to a relative decline in American power and the emergence of new regional powers. As actors worldwide adjust to this shifting reality, they will challenge the established order, which could result in conflict and even war. Meanwhile, diplomatic and military efforts to prevent such outcomes will likely diminish. Three prominent examples where risks are up:
Korean Peninsula: An alliance with Russia, combat training in Ukraine, and a more accommodating Trump administration make the North, already more belligerent in rhetoric, more comfortable with conflict. Political disarray in the South increases the risks
Taiwan Strait: Rising tensions between China and Taiwan, exacerbated by a more aggressive US policy toward China, increases the risk of military confrontation, all the while Chinese military capability grows
Europe: Wavering American commitments to NATO is an invitation for Russia to test the alliance resolve by increased hybrid warfare using grey-zone tactics
Large-scale military conflicts, such as those in Ukraine and the Middle East, should not be treated as remote possibilities or outliers; companies must start planning more actively for contingencies.
SABOTAGE AS THE GREY ZONE OF WARFARE
Global instability is coming for infrastructure through intentional or accidental disruption of key communications.
Shipping: The Houthis in Yemen demonstrated how easy it is to impose huge shipping costs around the world. Cheap radars and mobile anti-ship missiles provided by allies can close shipping lanes.
Subsea infrastructure: Russia and China have demonstrated capability by dragging anchors along the bottom of the ocean floor and disrupting energy and telecommunications infrastructure. More sophisticated attacks could dramatically increase the scale of future damages.
Air traffic: Larger areas than ever before are unsafe for civilian airliners. Last year saw airliners flying through missile barrages in the Middle East, the shooting down of Azerbaijan Airlines 8243 (the third such incident in 10 years), and increasingly frequent disruptions to GPS systems.
Critical infrastructure will increasingly be at risk, and it is no longer possible to rely on existing infrastructure as being guaranteed. New targets and forms of attacks mean that mitigation is needed to prepare for such attacks in 2025.
DESTABILIZED IRAN: A BREWING MIDDLE EAST CRISIS
Iran’s position has significantly weakened following a year of sustained conflict with Israel, which carries the risk of further destabilization.
Iran's missile force has proven ineffective against Israel's missile defense systems, its proxy forces across the region have been severely diminished, and Israeli military strikes have destroyed its air defenses, leaving the country vulnerable to future attacks.
While Iran’s weakened state might reduce its destabilizing activities in the region, it could also drive it to accelerate efforts toward acquiring nuclear weapons. Additionally, this vulnerability may invite aggressive military postures from Israel and the United States or exacerbate domestic unrest through internal protests.
Iran remains a key oil producer and controls the Strait of Hormuz, a critical chokepoint for 25% of global oil supplies. Escalating tensions or instability could lead to significant oil price spikes with broad economic repercussions.
A volatile Iran poses risks to regional security and global energy markets, potentially having ripple effects on geopolitical stability and economic performance.