Global Economy’s False Dawn? Growth Upgraded Amid Dire Warnings

The global economy is showing surprising strength this year, with a leading financial institution raising its growth forecast to 3.2%. This unexpected resilience comes despite ongoing trade tensions, particularly the tariffs initiated by the United States. However, this optimistic short-term picture is clouded by a stark warning that the long-term outlook remains “dim” and fraught with significant risks.
The report suggests the world has not yet felt the full sting of protectionist trade policies. It draws a parallel to the economic impact of Brexit, noting that business investment in the UK only began to fall steadily well after the initial event. This implies that the negative consequences of the tariffs on global investment and economic activity may be operating on a significant time lag.
For the United Kingdom, the forecast is a mixed bag. While this year’s growth has been modestly upgraded to 1.3%, the country is facing a serious inflation problem. Projections indicate UK inflation will be the highest in the G7 in 2025 and 2026, averaging 3.4% next year. This persistent price pressure complicates the economic picture significantly.
Beyond trade, the report highlights other major threats to global stability. More restrictive immigration policies, particularly in the US, could shave between 0.3% and 0.7% off its GDP and fuel inflation in labor-intensive sectors like construction and hospitality. This underscores how non-trade policies can have powerful economic consequences.
Furthermore, the institution has flagged “stretched valuations” in global stock markets, partly driven by hype around generative AI. It cautions that if market sentiment shifts and these high share prices see a “correction,” the resulting drop in investment could be sharp and damaging, especially since AI-related spending has been a recent driver of growth.