The world economy at (another) crossroads
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
'Uncertainty' has been the defining theme in economic discourse for at least five years. Read the papers, go to a conference, meet a client – it's the one constant in the conversation.
It feels like we're permanently teetering on the edge of a crisis, but are we really moving from one uniquely uncertain moment to the next, or are we just more finely tuned to risk after a succession of economic shocks?
If you think it's the former, you're not alone. US traders are seeking protection against dramatic shifts in the Federal Reserve's approach to monetary policy, Bloomberg reports. Investors in the options market are loading up on hedges that cover for a wider range of outcomes, from the possibility of no rate cuts at all to a series of half-point reductions before the end of 2025.
A uncertain path
Read yesterday's Economic Outlook from the OECD and the market anxiety makes sense. One scenario sees global trade fragment as the US raises tariffs, prompting retaliation that deepens a slowdown and disrupts supply chains. Inflation sticks in countries with tight labour markets or rising trade costs, forcing central banks to tighten further and squeezing already debt-heavy governments.
In a more optimistic outcome, trade barriers ease, growth picks up, inflation cools, and geopolitical tensions – such as Russia's war in Ukraine – begin to ease, lifting sentiment and unlocking investment.
“The global economy has shifted from a period of resilient growth and declining inflation to a more uncertain path,” OECD Secretary-General Mathias Cormann said.
The group's central scenario is for global growth to ease from 3.3% in 2024 to 2.9% in both 2025 and 2026, with the most marked slowdowns in the United States, Canada, Mexico and China. The US is forecast to see GDP growth fall from 2.8% this year to 1.6% in 2025 and 1.5% in 2026, while China’s economy is expected to slow from 5.0% to 4.3% over the same period. The euro area is projected to pick up modestly, from 0.8% to 1.2% by 2026. Inflationary pressures are expected to linger in some economies, particularly those facing rising trade costs, though weaker commodity prices may help offset the effects. G20 inflation is forecast to moderate to 3.6% in 2025 and 3.2% in 2026.
Permacrisis
Even under the more optimistic scenario, recent history suggests that rolling crises are likely to keep policy uncertainty elevated, weighing on investment. Historian Adam Tooze has described the modern era using terms like 'polycrisis' and 'permacrisis' – a period defined not by isolated shocks but by continuous, overlapping disruptions. Since the Global Financial Crisis, the world has staggered from sovereign debt and climate upheaval to the pandemic, war in Ukraine, and escalating tensions over trade and technology.
These disruptions aren’t just sequential, Tooze argues – they’re compounding, forcing policymakers and markets into a state of near-permanent vigilance and adjustment.
It’s a fitting description of today’s environment. Trade may be the most visible driver of uncertainty, but policy unpredictability has been dragging on investment since at least 2016, according to OECD data (see charts below - sourcing on P.73 of the OECD report).
If high uncertainty levels persist, real investment could be 1.4 percentage points lower by the end of 2026. On the other hand, a return to the more stable conditions seen between 2015 and 2019 could boost investment by 1.8 percentage points.
Lacking in urgency
Tinkering with taxes distorts property market activity, and we're now seeing wild gyrations in the data as a result of new SDLT rules introduced at the start of April. Those changes reduced the nil rate band and raised the surcharge for additional properties.
The number of transactions in March was 104% higher than last year, while there was a 28% fall in April, HMRC data showed last week. Similarly, Bank of England figures published earlier this week showed that net borrowing of mortgage debt soared by more than £9 billion in March and then plunged by £13.7 billion a month later.
What's really going on? Well, the BoE's mortgage approvals for purchases metric provides a better barometer for the health of the market as they reflect buyer intent at an earlier phase. April's approvals did decrease marginally for the third consecutive month, and at 60,500 are now running about 10% below the 2019 average. Then on Monday, Nationwide reported that annual house price growth picked up marginally to 3.5% in May, from 3.4% the previous month.
The market is resilient but lacking in urgency. As Nationwide's chief economist Robert Gardner noted, unemployment remains low, earnings are rising at a healthy pace in real terms, household balance sheets are strong and borrowing costs are likely to moderate further as the year progresses. That will underpin a slow and steady recovery - you can see our forecasts here.
Want more detail? Read Tom Bill's piece on what previous stamp duty distortions might tell us about the months ahead.
In other news...
From our team - Lizzie Breckner on navigating nuance in the complex BTR market.
Elsewhere - UK office construction drops to 10-year low (FT).