The global economy has proven surprisingly robust in the face of escalating trade protectionism, leading a prominent international financial institution to upgrade its 2025 global GDP growth forecast to 3.2%. This resilience, however, is seen as temporary, with the full impact of US tariffs yet to be absorbed by the world’s businesses and consumers.
The report describes the future outlook as “dim,” arguing that the current stability is deceptive. It was partly caused by consumers and companies rushing purchases before tariffs took effect, creating an artificial boost. The institution uses the slow-moving economic fallout from Brexit as an analogy for how the real damage from tariffs could take years to manifest in investment decisions.
While trade wars have dominated headlines, the report shines a spotlight on other pressing dangers. Chief among them are restrictive immigration policies, with the US crackdown identified as a potential drag of up to 0.7% on its own GDP. Such policies risk creating labor shortages and stoking inflation in key sectors.
Another major concern is the stability of the financial markets. The report highlights “stretched valuations,” especially in the tech sector, where investor excitement about artificial intelligence has pushed stock prices to precarious heights. A sudden loss of confidence could trigger a sharp “correction,” leading to a significant downturn in crucial business investment.
The UK finds itself in a peculiar position, with its growth forecast slightly improved to 1.3%, making it a strong G7 performer. Yet, it is also on track to suffer the highest inflation rate in the G7 in 2025 and 2026. This has prompted calls for the Bank of England to resist the temptation to lower interest rates too quickly amidst persistent price pressures.
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