Two emerging threats—”stretched” stock market valuations and restrictive immigration curbs—are casting a long shadow over a fragile world economy, according to a major new report. While the global growth forecast for this year has been revised up to 3.2%, the institution warns that these twin threats contribute to a decidedly “dim” outlook.
The report expresses significant concern about the stability of financial markets, particularly the tech sector. It warns that investor enthusiasm for artificial intelligence may have pushed share prices to unsustainable levels. A “correction” could lead to a “rather sharp” fall in investment, which has been a key pillar of recent economic growth.
At the same time, the report sounds the alarm on the economic consequences of tightening borders. It provides a stark analysis for the United States, suggesting its immigration crackdown could reduce its GDP by as much as 0.7% and fuel inflation in sectors reliant on immigrant labor, such as hospitality and agriculture.
These new concerns are layered on top of the lingering threat from trade tariffs. The report argues that the global economy’s “unexpected resilience” is misleading, as the full, negative impact of protectionism on business confidence and investment is still expected to materialize over the medium term.
The UK’s economic situation is presented as a case in point for this complex environment. It has received a small growth upgrade to 1.3% but is also facing the G7’s highest projected inflation rate. This highlights the difficult balancing act required to navigate both domestic challenges and a world beset by multiple, overlapping risks.