HEADING FOR A SLUMP

The timing could hardly have been less propitious. Just as the world economy was showing signs of stabilising, the odds of a policy-induced global recession have risen significantly.

- Eswar Prasad & Caroline Smiltneks

The latest update to the Brookings-FT Tiger index reveals a mixed picture, with the financial index declining and private-sector confidence crumbling even as macroeconomic data suggest a more benign scenario.

Obviously, the biggest fac-tor is US President Donald Trump's tariff policy, which has disrupted world trade and fueled turmoil in finan-cial markets, undermining growth prospects that had looked promising at the start of the year. The US economy performed well in the first quarter of 2025: output and employment grew robustly through March, and inflation fell gradually. But that all changed in April with Trump's announcement of "reciprocal" tariffs aimed at practically all US trading partners.

Since then, financial mar-kets have been reeling, and a subsequent pause on tariffs (except on imports from Chi-na) and various carve-outs have done little to quell the whiplash effect. The uncer-tainty has severely dented consumer confidence and is likely to take a toll on busi-ness investment and employ-ment growth. Making matters worse, as the costs of tariffs are passed on to US consum-ers and drive up inflation, the US Federal Reserve's ability to support the economy and forestall financial turmoil will be constrained. The tar-iff bloodbath has already in-creased the probability of the US economy stalling, and US policymaking will remain fun-damentally unpredictable and lacking any clear economic logic.