Reviving growth in an age of uncertainty
EDITORIAL: Since the onset of the second Trump presidency, the global economy has been contending with the far-reaching consequences of the White House's impulsive and poorly calibrated trade policies, epitomised by the abrupt imposition of steep tariffs on major trading partners in a misguided effort to shrink the US trade deficit.
The immediate aftermath saw stock markets falter, businesses brace for instability, and currency and bond markets reel from heightened volatility. Yet beyond the initial shock, one could argue that the deeper and more enduring damage stemmed from the erosion of policy predictability and a collapse in confidence in coherent governance.
This climate of uncertainty has become a tangible drag on global economic growth, as underscored by last week's Organisation for Economic Cooperation and Development's (OECD) Economic Outlook report, which revised its projections downward — from 3.3 percent global growth in 2023 to an anticipated 2.9 percent through 2025 and 2026. These figures represent a notable downgrade from the organisation's March forecast — 3.1 percent for this year and three percent for next year — reflecting deteriorating confidence in the international economic landscape.
The OECD has warned that this trajectory could darken further should protectionist tendencies intensify, risking higher inflation, fractured supply chains and financial market instability. We have already witnessed this dynamic in action. When the US first imposed its tariffs, several affected nations responded in kind, unleashing a damaging cycle of economic tit-for-tat. So what began as an aggressive unilateral strategy soon spiralled into a broader crisis of uncertainty, deterring investment, paralysing supply networks and casting a shadow over global markets that still hasn't abated.
Beyond the turbulence caused by erratic trade policies, the OECD has sounded another urgent alarm regarding the growing strain on public finances worldwide. With government debt already at precarious levels, nations now face rising demands on other fronts: military expenditures, green energy investments and the mounting costs of aging populations, particularly in developed countries.
Additionally, rising interest rates have sent debt servicing costs soaring, squeezing budgets already stretched thin. The strain is most acute for developing economies, many of which face looming debt refinancing needs amid tightening global financial conditions.
Meanwhile, inflated equity valuations in major markets have left financial systems vulnerable to sudden shocks. Together, these fiscal headwinds threaten to further dampen an already faltering global recovery, transforming what might have been temporary challenges into entrenched structural weaknesses.
In its report, the OECD has provided a policy roadmap for restoring economic stability, which emphasises four critical interventions. Firstly, it has advocated for a return to cooperative trade relations, with a concerted effort to reduce tariffs and ease tensions.
Avoiding further trade fragmentation is paramount as this would provide the surest foundation for recovery. Secondly, central banks should remain vigilant against inflation while preparing to ease policy rates once conditions permit, provided trade tensions don't escalate and inflation expectations remain stable.
Thirdly, on the fiscal front, governments must ensure that public debt remains on a sustainable path. They must demonstrate the political courage to implement credible medium-term plans, streamlining inefficient expenditures, improving tax systems and targeting support where it matters most. Without such reforms, many nations risk being unprepared when the next crisis strikes.
Finally, the OECD has called for boosting investment levels as that will be instrumental to reviving economies and improving public finances. Chronic underinvestment has proved to be a structural drag on growth, so coordinated efforts to remove barriers to both private capital formation and public infrastructure development have become essential.
Ultimately, what's needed is collaborative global action on trade, disciplined fiscal stewardship and a return to pragmatic, data-driven policymaking. Ideological rigidity and protectionist impulses will only exacerbate current challenges and delay meaningful recovery.
Copyright Business Recorder, 2025
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