The global economy is navigating a “fog of war” created by “whipsawing” and unpredictable government policies, a new report has warned. This profound uncertainty makes forecasting incredibly difficult and is the primary reason for a “dim” long-term outlook, even as the immediate 2025 growth forecast has been lifted to 3.2%.
The report, from a top financial institution, argues that “wild swings in trade policies” have distorted recent economic data. The “apparent resilience” of the economy is not a sign of fundamental strength but a reflection of businesses and households making chaotic, short-term decisions to protect themselves from the next policy shock.
The institution warns that this fog of uncertainty is having a chilling effect on the most important driver of long-term growth: business investment. Citing the UK’s post-Brexit experience, the report shows that companies will delay major projects until the policy environment becomes clearer, leading to a slow but steady economic drag.
The UK itself is trying to find its way through this fog. A modest upgrade to 1.3% growth is welcome, but it is paired with a G7-leading inflation problem, highlighting the difficulty of achieving stability in such a chaotic environment.
The report also identifies other policy-driven risks adding to the fog, including the global trend towards more restrictive immigration and the unpredictable nature of financial market sentiment around AI. The core message is that until a degree of policy stability and predictability returns, the global economy will struggle to find a clear path forward.
