**Global:** Brookings and FT report highlights rising trade tensions, tariff impacts, and policy volatility disrupting the global economic recovery in 2025, with US tariffs triggering market turbulence and uneven growth across major regions including Europe, Asia, and emerging markets.
The global economic outlook has become increasingly uncertain amid rising trade tensions and policy volatility, according to the latest analysis from Brookings in collaboration with the Financial Times (FT). The updated Tracking Indexes for the Global Economic Recovery (TIGER), compiled by Eswar Prasad of Brookings and Caroline Smiltneks of Cornell, presents a complex picture: while traditional macroeconomic indicators lag and suggest a relatively benign scenario, both financial markets and private sector confidence are showing marked deterioration.
This shift occurred sharply in April 2025 following the announcement by then-US President Donald Trump of reciprocal tariffs targeting nearly all US trading partners. This move disrupted the previously stabilising global economic recovery, unsettling financial markets and undermining growth prospects after a solid start to the year. The US economy had demonstrated robust output and employment increases in the first quarter of 2025, coupled with a gradual easing of inflation. However, the imposition of tariffs precipitated severe market volatility and consumer confidence took a substantial hit. Despite subsequent pauses in tariff implementation—except for those concerning Chinese imports—and some targeted carve-outs, the nervousness persisted.
Brookings highlights that the uncertainty resulting from these trade policies is likely to negatively impact business investment and employment growth. Moreover, the Federal Reserve’s capacity to stimulate the economy or prevent financial instability is constrained by the inflationary effects induced by tariffs on domestic prices. The combination of trade barriers and unpredictable policymaking raises the probability of an economic slowdown in the US.
Across the Atlantic, the eurozone continues to experience heterogeneous performance. Core economies including Austria, France, and Germany are grappling with low growth rates and mounting fiscal pressures, exacerbated by political uncertainties leading to increased borrowing costs. Conversely, southern European countries such as Greece, Italy, Portugal, and Spain have maintained relatively better economic resilience. Nonetheless, disruptions to international trade networks are expected to adversely affect Europe’s manufacturing hubs and broader industrial output.
In Asia, Japan and the United Kingdom reported modest economic growth, but structural vulnerabilities and limited policy flexibility are likely to be tested amid ongoing trade tensions. China, which had shown signs of recovery following a recent downturn, now faces significant challenges. Despite expanding industrial capacity, domestic demand remains insufficient, reflected in persistent deflationary trends. China has responded to US tariffs with retaliatory measures, including tariffs on American goods, intending to exert economic pressure on the US. Nevertheless, the strategy faces limitations given China’s economic weaknesses and the protective steps taken by other countries against a surge in Chinese exports. While China possesses fiscal and monetary tools to stimulate domestic consumption, their efficacy depends on accompanying broad reforms to restore market confidence.
India stands out in the emerging markets as its economy continues to perform strongly, driven by rural consumption and a vibrant services sector. Factors such as expanding domestic demand, stable financial markets, and its positioning as an alternative supply chain destination amid shifting global production have sheltered India from the worst trade-related shocks. Conversely, Brazil faces challenges including inflation, a depreciating currency, and falling consumer and business confidence despite increased consumer spending. South Africa struggles with ongoing power shortages, sluggish growth, and currency weakening.
The compounded impact of US tariffs and excess industrial capacity in China is expected to significantly restrain growth in emerging and developing regions. Export-dependent economies in Southeast Asia are particularly vulnerable, while low-income countries, especially in Africa, face heightened risks from trade disruptions, increased debt repayments, and diminished foreign aid as major economies adjust their fiscal priorities. The period of relatively free and unfettered international trade appears to be ending, with the Trump administration’s tariffs triggering a surge in protectionist policies worldwide.
The introduction of widespread trade barriers has fundamentally altered global trading patterns. Even before the recent tariff escalations, geopolitical tensions were driving increasing fragmentation in international trade relationships, weakening economic linkages between countries. Although it remains too early to predict a global recession, the breakdown in trade cooperation and elevated uncertainty are expected to inhibit growth prospects in the near term. Countries may need to optimise available macroeconomic policy tools and implement structural reforms aimed at enhancing economic flexibility and boosting domestic demand to withstand ongoing turbulence.
The Brookings report underscores that the global economic landscape is entering a phase of heightened volatility and policy-induced risks, with significant implications for international trade and economic recovery trajectories across developed and developing economies alike.
Source: Noah Wire Services
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