A landmark new report on the world economy has upgraded this year’s growth but its core message is one of “dim prospects.” Here are five key takeaways from the sobering analysis that has policymakers in Washington talking.
First, don’t trust the current resilience. The upgrade of 2025 global growth to 3.2% is misleading. It was largely caused by a temporary surge in buying as consumers and businesses rushed to get ahead of tariffs. The underlying health of the economy is weaker than this number suggests.
Second, the tariff pain is coming. The report uses the UK’s post-Brexit investment slump as a clear analogy for what the world should expect. The economic damage from protectionism operates on a significant time lag, and the main impact on business investment is still on the horizon.
Third, inflation is the UK’s Achilles’ heel. Despite being a G7 growth leader this year, the UK is forecast to have the group’s highest inflation rate for the next two years. This makes it a significant outlier and poses a major challenge for the Bank of England.
Fourth, immigration and AI are the new frontier of risk. The report moves beyond trade to highlight the economic drag from restrictive immigration policies (a potential 0.7% hit to US GDP) and the danger of a “correction” in “stretched” AI-related stocks, which could crater investment.
Fifth, caution is the only rational response. The report’s overarching message to central banks is to be “very cautious” about easing monetary policy. With so many delayed-action risks and new threats emerging, the time for aggressive rate cuts has not yet arrived.