The global economy is shaking off both the trade war and AI fears

Copyright © HT Digital Streams Limited All rights reserved. The Economist 4 min read 21 Oct 2025, 06:26 IST The global economy is doing well in part because Mr Trump’s tariff war is turning out to be less brutal than expected. (Getty Images via AFP) Summary Can anything bring it down? SIX MONTHS ago, when President Donald Trump announced a trade war of unprecedented aggression, businesses and investors braced for a meltdown. Movements in financial markets pointed to a deep recession. American consumer confidence has weakened. So are some “real-time” measures of economic growth. Yet today, even as America and China trade bitter barbs, there are fewer “Liberation Day” effects than expected. View full image chart: The Economist A “current-activity indicator” produced by Goldman Sachs, a bank, finds that the global economy, after slumping in the spring, is growing almost as fast as before Mr. Trump was running (see chart 1). The JPMorgan global composite PMI, a high-frequency gauge of activity, looks strong: in August it hit a 14-month high. A real-time measure from the Federal Reserve Bank of Atlanta suggests that America’s GDP grew by 3.9% at an annualized rate in the third quarter of 2025 – a strong performance, although almost everyone expects the fourth quarter to be weaker. Only one OECD country, Finland, is in recession, compared with eight in early 2023. In April, economists downgraded their forecasts for global economic growth in 2025 to 2.2%; now the consensus is 2.6%, where it was at the beginning of the year. The world economy is doing well in part because Mr. Trump’s tariff war turns out to be less brutal than expected. Its policies in April implied an effective US duty as high as 28%. After a series of cutbacks, imports currently face a tax of just over 10%. Meanwhile, gung-ho fiscal policy, especially in America, is stimulating demand. These favorable conditions may come to an end: mr. Trump could slap new tariffs at any moment, while at some point governments could find a way to reduce budget deficits. For now, however, financial markets believe that the economic momentum will continue. Investors are expecting a decent corporate earnings season for the third quarter of this year, after a second quarter where global company profits grew 7% year over year—above the historical average. The MSCI ACWI, an index of global stocks, is at all-time highs. During economic expansions, “cyclical” companies—those that supply discretionary items such as automobiles and construction equipment—typically outperform “defensive” companies, with products that people need regardless of the weather (such as consumer goods). In sharp contrast to April, the share prices of global cyclical companies are tearing apart. Moreover, many common concerns about the global economy are less frightening than they first sound. One worry is that artificial intelligence investment spending, particularly on data centers, is the only thing keeping the party going, which spells disaster if investors cool off on the technology. This argument is strongest in America, where investment in information processing equipment and software (IPES) accounted for around 40% of growth in real GDP over the past year. Yet, at an absolute minimum, two-thirds of IPES have nothing to do with AI. For example, the data includes a business that buys a computer. Moreover, outside America there is no evidence whatsoever that IT is driving growth. A second concern relates to employment opportunities. Employment growth in America has slowed. The next jobs report, when the end of the government shutdown permits its publication, may show virtually no payroll growth. This has raised fears of AI-induced unemployment. Not so fast. A new study by the Yale Budget Lab finds that “the broader labor market has not experienced a discernible disruption since ChatGPT’s release.” Outside America, there is little evidence of a slowdown in employment. In the first half of the year, the other 37 countries in the OECD club added 3 million jobs, in line with the norm just before the covid-19 pandemic. To the extent that America’s labor market is weak, particular factors such as the Trump administration’s crackdown on immigration can be blamed. View full image map: The Economist A third concern relates to consumer confidence. Although in America it has risen from the lows of April and May, it still remains well below its pre-covid level (see chart 2). The situation is only a little better elsewhere. A global measure of economic policy uncertainty remains high, as do Google searches for “tariffs,” suggesting Mr. Trump’s policies still weigh on people’s minds. Others fear that an AI stock market will make people even more miserable. Economists typically argue that gloom predicts an economic slowdown. Yet, six months after Liberation Day, if high uncertainty was going to have such an effect, surely it should have done so by now. The world economy has become remarkably resistant to “crises”. Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #globaleconomy Read next story