The single biggest drag on the long-term health of the global economy is the great unknown of policy uncertainty, a new report has concluded. While this year’s growth has been revised up to 3.2%, the institution describes the future as “dim” precisely because “wild swings” in policy have made it impossible for businesses to plan ahead.
The report argues that the economic damage from events like the US tariff introductions is not primarily the direct cost, but the chilling effect of unpredictability on investment. Citing the UK’s post-Brexit investment slump as a case study, the analysis shows that when businesses cannot be sure of the rules of the game, they simply stop playing.
This has created a “whipsawing” effect on forecasts and a “fog of war” environment for companies trying to make long-term capital commitments. The current “resilience” is seen as a symptom of this chaos—a series of short-term, reactive decisions rather than a sign of confident, forward-looking growth.
The UK itself is a prime example of this uncertainty, with a positive short-term growth number existing alongside a G7-leading inflation problem, making its future path difficult to chart. The Bank of England has been advised to act with “great caution” in this environment.
The report also flags other sources of uncertainty, including the future of immigration policy and the sustainability of the AI-driven stock market rally. The overarching message is that stability and predictability are essential ingredients for economic prosperity, and they are currently in dangerously short supply.