A Volatile Economy and Investor Psychology

The year 2025 is marked by growing global economic uncertainty, geopolitical risks, and changing trade policies. The world economy’s total growth rate, which was around 3.2% in 2024, is expected to slow to approximately 3.0–3.1% in 2025. The OECD points to trade tensions as a key factor in this slowdown. Data from Q2–Q3 2025 reflects this moderation.

This stable yet slow trend has shaped investors’ risk perception. According to UNCTAD, global foreign direct investment (FDI) fell by 11% in 2024, and warnings suggest the decline may continue in 2025. This trend encourages investors to focus on shorter-term, safer decisions.

Investor Confidence and CEO Expectations

KPMG’s global CEO survey shows that leaders are concentrating more on internal strategies than on the overall economic outlook:

• Confidence in the global economy has dropped to the lowest level in five years.

• CEOs are shortening investment payback periods and reshaping strategies to manage risks.

• Artificial intelligence (AI), cybersecurity, and regulatory compliance are top areas for budget allocation.

  
  

This indicates a shift in investment from traditional growth models toward technology and strategic transformation.

Macroeconomic Trends: 2024 vs. 2025

Global Growth

PwC reports:

• Global GDP growth stabilized at 2.8% in 2024 but is projected to decline to 2.6% in 2025 and 2026 due to geopolitical tensions and rising protectionism. The US and China are expected to slow, while India maintains strong growth above 6%.

Malta’s Economic Performance

• Economic growth remains ahead of the euro area but shows signs of slowing. Growth in Q1 2025 reached 3.0%, compared to 3.1% in Q4 2024.

• Local economic sentiment in Malta showed a downward trend throughout 2024. After a brief rebound in October–November, sentiment continued to decline in the first five months of 2025.

  

This slowdown is putting pressure on investment decisions, as investors are cautious about long-term, capital-intensive projects.

Impact of Trade Policies

Rising tariffs and protectionism have directly affected production and investment decisions, especially in Europe and US trade relations. OECD forecasts a slowdown in US growth in 2025 and 2026.

As a result, investors are increasingly focusing on internal flexibility, distributed production, and AI-driven processes to manage supply chain vulnerabilities.

Why Are Investors More Cautious?

1. Geopolitical and Trade Risks

   • Trade tensions and protectionist policies have reduced FDI flows.

   • Uncertainty has pushed companies to increase cash reserves and delay investments.

2. Challenging Financial Conditions

   • High interest rates and financing costs make borrowing less attractive for capital-intensive sectors.

3. Short-Term Return Focus

   • CEOs aim to shorten investment payback periods, favoring technology-focused projects, particularly in AI and cybersecurity.

This shift highlights a “risk-managed growth” approach in investor behavior.

Strategic Sector Forecasts for 2026 and Beyond

1. Artificial Intelligence & Digital Transformation

   
   

   Technology investments are becoming essential not only for efficiency but also for developing new products and services. CEOs are allocating a significant portion of their portfolios to AI.

   
   

   Opportunities include:

AI infrastructure and data centers

Cybersecurity

Automation and digital operations

2. Energy & Infrastructure

Energy transition and infrastructure investments are key drivers of future growth. Data center energy demand and green energy infrastructure are emerging as important growth areas.

3. Financial Services & Banking

   
   

   AI-driven efficiency is making banking more attractive. Cost savings and revenue growth linked to AI could boost bank shares.

   
   

4. Renewable & Green Energy

   
   

   Consulting firms like PwC emphasize that sustainable energy projects offer long-term investment opportunities amid climate transition efforts.

   
   

5. Declining/Withdrawing Sectors

   Traditional manufacturing may face pressure from rising protectionism.

   Non-service production and outdated business models may lose capital attraction.

Conclusion: Investment Strategies in Volatile Times

2025 is shaping up as a year for “cautious growth” strategies. High uncertainty, protectionist policies, and deep sectoral transformations have created volatility in investor confidence while revealing new opportunities.

Strategic Recommendations:

• Diversify portfolios to spread risk

• Prioritize technology and digital transformation investments

• Evaluate long-term opportunities in energy and infrastructure

• Focus on sustainable growth over short-term returns

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