A new report is sounding a global stagflationary alarm, warning that the economic outlook is “dimming” due to a combination of slowing growth drivers and rising inflation risks. While this year’s global growth forecast has been revised up to 3.2%, the analysis points to multiple factors that could lead to a painful mix of weak activity and high prices.
A key inflation risk identified is the rise of restrictive immigration policies. The report warns that a crackdown in the US could lead to labor shortages and “stronger inflationary pressures” in key sectors. This would happen alongside a direct hit to GDP, a classic stagflationary shock.
For the UK, the inflation risk is already a reality. The report forecasts that Britain will have the highest inflation rate in the G7 over the next two years, reaching 3.4% in 2_025_. This persistent price pressure exists alongside a modest growth forecast of 1.3%, highlighting the stagflationary challenge facing its policymakers.
On the growth side, the report warns that the full, negative impact of US trade tariffs on business investment is still to come. This expected slowdown in investment represents a major drag on future global growth potential.
Adding to the complexity is the risk of a financial market “correction.” A sharp fall in stock prices would not only hit investment but could also damage consumer confidence, further weakening the growth side of the economic equation. This combination of threats has put the world on notice for a potentially difficult period of low growth and high inflation.