A new global economic report presents a riddle: why is the world economy showing “unexpected resilience” today, with growth upgraded to 3.2%, while its future prospects are described as “dim”? The answer, according to the analysis, lies in the delayed impact of major policy shocks.
The report explains that the economic system takes time to absorb events like the imposition of widespread tariffs. In the short term, consumer behavior—such as buying goods early—can mask the damage. However, the long-term effect is a steady erosion of business confidence and investment, a pattern the report likens to the UK’s economic performance after the Brexit vote.
The UK’s current forecast embodies this riddle. It is set to be a G7 growth leader this year at 1.3%, yet it is also predicted to suffer the G7’s highest inflation rate for the next two years. This suggests that the short-term resilience is not translating into long-term stability or price control.
The report identifies other delayed-action threats as well. Restrictive immigration policies are expected to gradually choke off labor supply, leading to slower growth and higher inflation in the future. Similarly, the potential collapse of an AI-fueled stock market “bubble” would have a powerful, albeit delayed, impact on real-world investment.
The solution to the riddle, the report implies, is to look past the immediate data. Policymakers are being urged to focus on the underlying structural risks that are building up in the system, rather than being comforted by the temporary and potentially misleading strength of the current economy.