In a surprising turn of events, the world economy is demonstrating remarkable resilience, brushing aside the dual threats of a fierce trade war and widespread fears about artificial intelligence's impact. Just six months after the announcement of unprecedented tariffs, key indicators suggest growth is nearly back to pre-conflict levels.
Strong Data Defies Gloomy Predictions
Financial markets and firms had braced for a severe slump following President Donald Trump's aggressive trade policy announcements in early 2025. Consumer confidence in America plummeted, and real-time growth measures dipped. However, the anticipated economic shock has been far milder than projected.
Goldman Sachs's current-activity indicator shows that after a spring slump, global economic growth has rebounded sharply. Complementing this, the JPMorgan global composite PMI hit a 14-month high in August. Perhaps most strikingly, the Federal Reserve Bank of Atlanta's real-time measure suggests the US economy grew at an annualised rate of 3.9% in the third quarter of 2025.
The forecast consensus for global economic growth in 2025 has been revised upwards from 2.2% in April to 2.6% now, matching the prediction at the start of the year. Furthermore, only one OECD country, Finland, is currently in a recession, a stark improvement from the eight nations in recession in early 2023.
Why the Economy Is Holding Firm
Analysts point to two primary reasons for this unexpected stability. First, the actual impact of the trade war has been less severe than its initial threat. While policies in April implied an effective American import duty as high as 28%, a series of climbdowns has meant imports currently face a tax of just over 10%.
Second, expansionary fiscal policy, particularly in the United States, has helped stoke demand. This combination has buoyed financial markets. The MSCI ACWI global stock index is at record highs, and investors anticipate a decent corporate-earnings season for Q3 2025, following a year-on-year global profit growth of 7% in Q2.
Cyclical firms, which supply discretionary items like cars and construction equipment, are seeing their share prices surge, a classic sign of economic expansion and a sharp reversal from their performance in April.
AI and Labour Market Fears Overstated?
Common economic worries related to technology and employment appear less dire upon closer examination. A major concern was that an AI investment boom, especially in data centres, was creating a fragile bubble. In the US, investment in information-processing equipment and software (IPES) accounted for about 40% of real GDP growth over the past year.
However, experts note that at least two-thirds of IPES investment is unrelated to artificial intelligence, encompassing routine business IT purchases. Outside America, there is scant evidence that IT investment is the primary driver of growth.
Similarly, fears of AI-induced unemployment may be premature. A new study by the Yale Budget Lab finds "the broader labour market has not experienced a discernible disruption since ChatGPT's release." Other OECD countries added 3 million jobs in the first half of the year, consistent with pre-pandemic norms. Where the US labour market shows weakness, specific factors like immigration crackdowns may be more culpable than AI.
Resilience in the Face of Uncertainty
Despite the positive data, underlying anxieties persist. Consumer confidence in America, while improved from lows in April and May, remains well below pre-COVID levels. A global measure of economic-policy uncertainty is high, and searches for "tariffs" on Google remain elevated, indicating continued public concern over Trump's policies.
Yet, the core takeaway is one of endurance. Six months after the trade war began, the global economy has shown a remarkable capacity to withstand crises. If high uncertainty were going to trigger a major slowdown, economists argue, it likely would have happened by now. For the moment, the momentum appears sustainable, defying the predictions of doom from both trade and technology fronts.
