The global economy is running on a temporary “sugar high” fueled by a pre-tariff spending binge, a new report has claimed. This has artificially boosted this year’s growth forecast to 3.2%, but the analysis warns of an inevitable crash as the effects wear off, leading to a “dim” future outlook.
The report’s central thesis is that the “unexpected resilience” of the economy is not based on strong fundamentals. Instead, it was driven by a rush of “brought forward consumption” as households and companies scrambled to make purchases before tariffs made goods more expensive.
The institution warns that this sugar high is now fading, and the underlying weaknesses of the global economy will become apparent. The primary symptom will be a slowdown in business investment, as the long-term uncertainty created by protectionism begins to bite. The report points to the delayed investment slump in the post-Brexit UK as a sign of what’s to come.
The UK’s current forecast reflects this dynamic. The 1.3% growth for this year is part of the sugar high. The subsequent crash is represented by the forecast for the G7’s highest inflation rate, a sign of the painful adjustment ahead.
The report also identifies other factors that will contribute to the comedown, including the economic drag from restrictive immigration policies and the risk of a “correction” in “stretched,” frothy financial markets. The message is that the short-term party is over, and the long-term economic hangover is about to begin.