New data points to contained global economic uncertainty

Recent data from businesses, investors, and professional forecasters seem to suggest that global economic uncertainty remains relatively contained, despite headline geopolitical and policy developments.

While the “Liberation Day” tariff announcements did cause a modest uptick in uncertainty, this rise appears both muted by historical standards and short-lived.

Similarly, the escalation of tensions in the Middle East has had only a limited effect on most uncertainty indicators.

Since April, perceptions of downside risk have eased significantly, according to some market researchers.

They say businesses now assess the likelihood of a global recession as less than half what it was earlier in the year.

Market-implied probabilities of sharp equity market declines have fallen notably.

The dispersion of forecasts among professionals seems to have narrowed to levels near historic lows.

This suggests that businesses are interpreting recent economic shocks quite differently from previous crises. Unlike the significant
spikes in uncertainty seen during the pandemic or following Russia’s invasion of Ukraine, recent downgrades to growth
expectations have not been accompanied by comparable increases in uncertainty.

A more pragmatic US trade policy may be playing a central role. Market participants appear to perceive it as placing a cap on the potential fallout from higher tariffs.

If sustained, this decline in uncertainty could imply more resilience in investment activity than current baseline forecasts suggest. However, the potential remains for a sudden reversal in sentiment. A breakdown in the current pause on US tariffs or major disruption in the Middle East could serve as catalysts.

Just weeks ago, the assertion by Fed Chair Jerome Powell that global economic uncertainty was “unusually elevated” went largely unchallenged. But since then, news-based measures of trade policy uncertainty have fallen markedly, returning to pre-Liberation Day levels.

At a broader level, recent data also point to a relatively stable uncertainty environment. Businesses have become more pessimistic about global growth prospects, yet their perceived range of potential outcomes has remained narrow.

For example, the July preliminary reading of Oxford Economics Global Business Sentiment Index shows an expected global growth rate of 1.6% for late 2025, down 0.8 percentage points from January this year.

Nevertheless, the interquartile range of perceived growth outcomes remains comfortably below the average for the decade to date.

“This narrative is corroborated by regional surveys from the Federal Reserve Bank of Atlanta and the European Commission, both
of which suggest stable or improving perceptions of uncertainty among businesses,” Oxford Economics noted recently.

In short, the reaction to recent shocks has been noticeably measured, especially when compared to periods like early 2020, when the Covid-19 pandemic introduced massive ambiguity around the scale and duration of the crisis.

And early 2022, when Russia’s invasion of Ukraine caused a sharp spike in perceived geopolitical and economic risk.

The recent pause in tariff escalation appears to have been a critical anchor, reinforcing expectations that US trade policy may remain disciplined and deliberate in the months ahead.

According to early third quarter (Q3) data from Oxford Economics Global Risk Survey, the share of businesses citing a global trade war as a major risk has fallen by roughly one-third over the past month.

Although April’s market volatility and unusual cross-asset movements had the potential to dent investor confidence, those effects appear to have faded.

A leading measure of expected stock market volatility is now well below the peaks observed during earlier episodes of heightened uncertainty.

Sceptics, however say, global economic uncertainty is unusually elevated right now, by both historical standards and current data.