A leading international financial institution is urging policymakers not to be fooled by this year’s better-than-expected economic numbers. While the global growth forecast has been upgraded to 3.2%, the organization’s latest report stresses that this “apparent resilience” masks “dim prospects” for both the short and long term.
The report deconstructs the current economic strength, attributing it to “trade-related distortions.” It argues that a significant portion of recent activity came from consumers and businesses rushing to make purchases before US tariffs came into full effect. This short-term boost is not sustainable and conceals the underlying damage to investment sentiment. The slow economic drag of Brexit on the UK is held up as a model for this delayed pain.
The UK itself embodies this contradictory outlook. It’s forecast to be one of the G7’s top performers in terms of growth this year (1.3%). However, it’s also predicted to have the group’s most severe inflation problem, with prices set to rise by 3.4% next year. The chief economist for the report specifically noted that UK households are losing faith that inflation will come down quickly.
Beyond the lingering threat of trade wars, the report identifies other significant dangers. A crackdown on immigration in the United States is flagged as a direct threat to its own GDP. Meanwhile, global stock markets are described as having “stretched valuations,” creating the risk of a sharp “correction” that could pull down investment.
The overarching message is one of vigilance. The report advises central banks, like the Bank of England, to be “very cautious” in their approach to cutting interest rates. The fear is that easing policy too soon could reignite inflation just as the global economy begins to feel the full, delayed impact of recent policy shocks.
Don’t Be Fooled by the Numbers, Warns Global Fund: “Dim Prospects” Lie Beneath Surface Resilience
