Why Is the Global Economy So Resilient?

With the global economy having weathered major trade and energy shocks over the past two years, growth should improve in 2027, and inflation should fall. Although various political and policy-driven risks could change the outlook, they remain less likely than the relatively benign baseline scenario. NEW YORK—Despite the rising risks, uncertainties, and large negative supply shocks of the last two years, stock markets and the overall global economy have held up quite well. Following the shock of US President Donald Trump’s “Liberation Day” (April 2) tariffs in 2025 came this year’s Iran War, which caused the largest energy shock since the oil crises of the 1970s. Yet, according to International Monetary Fund data, global growth was as high in 2025 as it was in 2024 (3.5%), and global inflation was lower in 2025 than in 2024. And while global growth is expected to slow to 3% this year, it is projected to recover (to 3.4%) in 2027, with inflation returning toward its 2025 level in 2027 after rising in 2026. What explains the global economy’s apparent resilience, and what are the biggest downside risks to the relatively benign outlook for 2027? Four major factors have prevented a downturn. First, market discipline forced the Trump administration to shelve its most stagflationary policies. Average US tariff rates spiked from 2.1% in January 2025 to 21.5% on April 2, 2025, but that triggered a market reaction that forced Trump to blink and negotiate tariff reductions. The average tariff rate is now 9.6%. Likewise, Trump’s decision to go to war against Iran caused an oil-price shock, rising bond yields, and a stock-market correction, leading him to negotiate a fragile ceasefire that partly reversed some of the damage. Continue Reading