Is the Global Economy in a Bubble? Report Warns of Market Froth and Delayed Tariff Pain

A new report from a preeminent global economic body raises the question of whether the world economy is in a bubble, warning of both financial market froth and a delayed pain from trade tariffs. While the institution has upgraded this year’s growth to 3.2%, it describes the foundation as unstable and the outlook as “dim.”
A key area of concern is the stock market, where “stretched valuations,” particularly in the AI sector, are seen as a major vulnerability. The report cautions that a “correction” in these overheated markets could lead to a “sharp” and sudden drop in business investment, which has been a critical engine for recent economic expansion.
This financial fragility is compounded by the lingering, and as yet unfelt, impact of protectionism. The report argues that the economy’s “unexpected resilience” is deceptive, created by a short-term rush of consumer spending ahead of tariffs. The long-term, negative consequences for investment and global supply chains are still to come.
The United Kingdom’s economy is presented as a microcosm of these global tensions. It boasts a slightly improved growth forecast of 1.3%, making it a strong G7 performer. However, it is simultaneously staring down the barrel of the highest inflation rate in the G7 for the next two years.
Adding another layer of risk, the report points to the economic damage being caused by restrictive immigration policies. The US, for example, is told its own policies could reduce its GDP by up to 0.7%. This combination of financial, trade, and policy risks paints a picture of a global economy that is far more precarious than the headline growth numbers suggest.