In a seemingly contradictory report, a major global financial monitor has lifted its immediate growth forecast for the world economy to 3.2% while simultaneously warning of “dim prospects” on the horizon. This “unexpected resilience” is attributed to a delayed reaction to major policy shifts like US trade tariffs.
The institution warns against complacency, suggesting the world is in the eye of the storm. The initial impact of tariffs was softened as consumers rushed to buy goods, but the chilling effect on long-term business investment is still to come. The report cites the UK’s post-Brexit investment slump as a textbook example of this delayed economic pain.
For the UK specifically, the forecast is similarly split. Growth for this year is now seen at 1.3%, a slight improvement. But looking ahead, the country is projected to face the most severe inflation problem in the G7, with price rises averaging 3.4% next year. This persistent inflation is fueled by strong wage growth and rising public expectations of future price hikes.
The report also identifies two other significant threats to global economic stability. First, increasingly restrictive immigration policies, especially in the US, are flagged as a direct impediment to growth, potentially causing labor shortages and inflation. Second, “stretched valuations” in stock markets, driven by AI optimism, pose a risk of a sharp correction that could stifle investment.
The core message from the report is one of caution. While headline numbers for this year may look better, the underlying fundamentals are weakening. Central banks, including the Bank of England, are being advised to remain vigilant and avoid easing monetary policy prematurely, as the biggest economic challenges may still lie ahead.