Buckling up for a long ride: chief economists add detail to a downbeat outlook

It hasn’t been that long since the World Economic Forum last shared results of its regular check-in with chief economists on the state of the global growth. But these mere four months have delivered a notable shift in sentiment.

Initial concerns about fragmentation and trade disruption have hardened into predictions of extended transformation; 79% of respondents in the Forum’s latest Chief Economists Outlook now regard historic recent policy shifts in the US (see: tariffs) as part of a long-term change in the trajectory of the global economy, up from 61% in the previous edition published in January. Only about one in five see it as short-lived interruption.

The pacing of announcements and alarm may vary, but the uncertainty seems to linger. So does anticipation of weakened growth and pockets of inflation, according to the outlook, which also covered topics like political polarization, the strength of the US dollar, the financing of bigger defence budgets, and the likely impacts of artificial intelligence.

There are also glimmers of hope, and a sense we may soon find a new baseline from which to rebuild and move forward. Greater strategic agility will be required of people running businesses, chief economists say, and unemployment levels may yet rebound to near historic lows.

Here are their more detailed insights:

“The dominant global economic theme is uncertainty. US policy decision making has become less predictable. Uncertainty about policy content is compounded by uncertainty about how sectors of the economy will react to both policy unpredictability and the eventual policy outcomes.

“We assumed a fairly rapid retreat from the initial ‘shock and awe’ trade tax announcements, which has largely been validated. However, the probabilities ascribed to risk scenarios around that central case remain high. The US is likely to experience self-inflicted slower growth and higher inflation. Investment and hiring decisions are stalling in the absence of greater certainty. We do assume second-round inflation effects and fear of unemployment will be contained in the US – which, combined with the solid starting point for growth this year, should prevent a more extreme economic downturn.

“Elsewhere, disruption to global trade is an obvious drag on growth but worst-case scenarios can be avoided. Fiscal policy offsets will help, and tariffs have not (to date) become multilateral. The growth drag from lower export volumes to the US is likely to reflect the US slowdown, more than loss of market share from tariffs. Disinflation trends should continue outside the US, supporting consumer spending power.”

“The global economic outlook continues to be weighed down by persistent policy and trade uncertainty.

“This collective uncertainty has taken a toll on labour markets, dampening employers’ demand for workers. Many businesses are reluctant to take on additional labour costs in such an unstable environment – reflected in a noticeable slowdown in hiring activity, and a decline in backfilling open roles.

“Globally, hiring rates – which had shown early signs of stabilization at the beginning of the year – reversed course in March and April. In the US, hiring slowed by approximately 6% year-over-year in both months. Australia experienced a 10% decline, while Germany and France saw drops of roughly 20%, and the UK recorded a 9% decrease.

“This cautious sentiment is also evident in job seekers’ confidence. LinkedIn’s US Workforce Confidence Index fell in March to its lowest point in five years, with a similar decline in sentiment now spreading across Europe.

“Looking ahead, this ‘soft’ sentiment data may soon be reflected in ‘hard’ economic data. While there are still pockets of strength – particularly in the healthcare and energy sectors – earlier signs of recovery in tech, finance, and hospitality appear to be stalling.

“That said, if the current period of heightened uncertainty begins to ease, we remain optimistic that this soft patch will be short-lived. The post-pandemic hiring boom is now clearly behind us but the labour market can still demonstrate resilience, with unemployment rates near, if not at, historic lows.”

“The global economy started 2025 in a solid position, but policy uncertainty clouds the outlook. The culprit is erratic US trade policy, which is driving global confidence and growth prospects lower. Steep tariffs were imposed by the US on April 2^nd but subsequently paused. A full-blown trade war between the US and China broke out, but then was also paused. Steep tariffs against the EU were announced in late May. Effective US tariffs are at levels not seen since the late 19^th century.

“Market reaction to US tariffs has been decidedly negative. Valuations dropped sharply following the tariff announcements but mostly recovered after the pauses. Volatility spiked as well. So far, trading has been orderly, although some markets, such as for M&A and spec grade (speculative-grade, or relatively high-risk debt) issuance, remain closed.

“The impact of US policy uncertainty on the real economy is still unclear. Soft data (such as PMIs, the regular surveys on manufacturing sector market conditions) have been negative, while the hard data (industrial production, employment) remain firm. Q1 GDP data was distorted by the front-running of tariffs. We see sharply slower growth, but no recessions in our baseline. Central banks remain cautious, but should continue to ease gradually.”

“Turbulence resulting from shifts in trade policy will leave few countries untouched. The economic impact may be significant – ranging from the direct effects of tariffs on US-bound exports, to the indirect consequences of weakened performance in other export markets, as well as fluctuations in commodity prices, and implications for inflation.

“Heightened uncertainty is likely to continue forcing governments to operate under conditions of limited visibility, and encouraging a ‘wait and see’ attitude among investors.

“Multinational corporations will shift their focus from ensuring the resilience of global value chains in terms of supply security, to prioritizing market access as the key concern.”

“The US administration’s volatile tariff stance has triggered a global confidence crisis: US consumer sentiment has plunged to its lowest levels since the 1980s, and global business outlook expectations have weakened to multiyear lows. While private spending has yet to visibly retreat – buoyed by front-loading ahead of tariff changes – financial volatility and diminished demand for dollar-denominated assets pose growing risks to the global outlook.

“Global real GDP growth is projected to slow from 3.2% in 2024 to 2.8% in both 2025 and 2026, the weakest pace since the pandemic (and the 2009 financial crisis before that). Although the US and China mutually reduced tariffs in May, average US duties remain historically elevated at 14%, sustaining a significant drag on global trade and activity.

“Advanced economies are forecast to grow by just 1.2%, with US GDP growth at 1.3% and euro area growth near 1%. Mainland China’s growth is expected to moderate from 5% in 2024 to 4.3% in 2025, while India remains resilient at around 6.4%. Central banks will recalibrate cautiously amid sticky inflation and slower economic activity.

“The global outlook is clouded by rising protectionism, fiscal pressures, and persistent geopolitical uncertainty – calling for greater strategic agility from business leaders.”

“The global economic outlook for 2025 indicates a significant slowdown, marking the weakest growth since 2008 (excluding the pandemic). Growth has been revised down primarily due to persistent US policy disruptions. The recent US-China trade truce offers a glimmer of hope; halving US effective import tariffs on China, and the deal-making strategy, should bring further relief by year-end. However, volatility and uncertainty remain high due to unpredictable trade policies.

“Inflation globally is expected to decrease to 4.2% in 2025 from 5.4% in 2024, with US inflation peaking at 3.5% by summer's end. This will allow the Fed (the US Federal Reserve, the country’s central bank) to ease cautiously by year-end (to 4%) and the ECB (European Central Bank) to cut rates below 2%. Global trade is projected to see a recession in goods volume terms, declining by 0.5% in 2025. China is set to bolster its economy with fiscal stimulus reaching 2.6% of GDP, one percentage point lower than before the tariff pause. China's GDP growth is forecasted at 4.5% for 2025, aided by export diversification and a moderately weaker currency. The Eurozone is expected to face below-potential growth due to trade disruptions – though investment and consumption, supported by German stimulus and increased defence spending, will provide some support.”