The global economy has demonstrated remarkable resilience against the rising tide of protectionism, prompting a leading financial body to lift this year’s growth forecast to 3.2%. However, the institution warns that protectionist policies act like a slow poison, with the most severe effects on investment and growth yet to become visible.
The report suggests the current economic strength is partly an illusion, created by a rush of consumption as households and companies moved to make purchases before new tariffs were enacted. This has masked the chilling effect that trade uncertainty is having on long-term business planning, an impact the report describes as leading to a “dim” future outlook. The delayed investment downturn in the UK after Brexit is cited as a cautionary tale.
While trade remains a central concern, the analysis also broadens its scope to other policy areas. It singles out restrictive immigration controls as a major headwind for future growth. The US, in particular, is warned that its current policies could shave up to 0.7% off its GDP and create inflationary bottlenecks in key industries.
Furthermore, the report casts a shadow of doubt over the booming stock market. Characterizing equity valuations as “stretched,” it raises the prospect of a market “correction,” especially if the feverish optimism around artificial intelligence begins to fade. A significant market downturn would inevitably hit business investment hard, jeopardizing the very growth it is currently celebrating.
In this challenging environment, the UK stands out for its specific struggles. Despite a small upgrade to its growth forecast (1.3%), it is on course to have the highest inflation in the G7 for the next two years. This has led to strong advice for its central bank to resist lowering interest rates until inflation is firmly under control.