The risks facing the global economy are evolving, with new threats joining the familiar danger of trade wars. A major new report highlights the potential for an AI-fueled stock market correction and the economic damage from immigration curbs as key concerns, even as it upgrades this year’s global growth to 3.2%.
While the world has shown “unexpected resilience” to Donald Trump’s tariffs, the report argues this is a temporary reprieve. The long-term outlook remains “dim” because the chilling effect of protectionism on investment is still working its way through the system. However, the focus is now expanding to include these new, pressing risks.
The report expresses considerable anxiety about “stretched valuations” in the stock market, warning that the hype around generative AI could be creating a bubble. It cautions that a “correction” in share prices would lead to a “sharp” decline in investment, which has been a crucial support for the economy recently.
Alongside this financial risk, the report points to the real-world economic cost of restrictive immigration policies. It calculates that the US could see a GDP reduction of up to 0.7% due to its own policies, which are also expected to fuel inflation in labor-starved sectors.
For the UK, the forecast is a mix of slightly better growth (1.3%) and significantly worse inflation, which is set to be the highest in the G7. This places the UK at the crossroads of these evolving global risks, facing both domestic price pressures and the potential fallout from international market volatility and policy shifts.