Is the global economy about to stall? It's best to stay prepared

Countries should conserve their economic-policy space in case growth slows sharply and adopt reforms aimed at resilience

- ESWAR PRASAD & CAROLINE SMILTNEKS

The timing could hardly have been less propitious. Just as the world economy was showing signs of stabilizing, the odds of a policy-induced global recession have risen significantly. The latest update to the Brookings-FT Tiger (Tracking Indexes for the Global Economic Recovery) index reveals a mixed picture, with the financial index declining and private-sector confidence crumbling even as macroeconomic data (which lags other indicators) suggests a more benign scenario.

Obviously, the biggest factor is US President Donald Trump's tariff policy, which has disrupted world trade and fueled turmoil in financial 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 markets have been reeling, and a subsequent pause on tariffs (except on imports from China) and various carve-outs have done little to quell the whiplash effect. The uncertainty has severely dented consumer confidence and is likely to take a toll on business investment and employment growth. Making matters worse, as the costs of tariffs are passed on to US consumers and drive up inflation, the US Federal Reserve's ability to support the economy and forestall financial turmoil will be constrained.