Economists blame tariffs, AI explosion for threatening global economy

There are two things keeping chief economists awake around the globe, if the World Economic Forum's latest survey is any indicator: US President Donald Trump's trade policies and AI.

The WEF's monthly Chief Economists Outlook for May was published Wednesday, and paints a generally gloomy picture of the global economy.

Economists surveyed lay the blame on "rising economic nationalism and tariff volatility" that, when coupled with potential for misused AI to destabilize society, means global uncertainty measurements are now higher than during the COVID-19 pandemic. The leading cause of that uncertainty, unsurprisingly, is trade policy, said 97 percent of respondents. 

For IT leaders wondering how that'll affect them, the WEF's position is clear: All this instability is going to stall long term decision making by businesses.

Every single respondent said that Trump's policies would disrupt the global economic order, with 79 percent expecting those policies - as willy nilly as they've been to date – to cause a long-term shift in the world economy. 

"While the pausing of most planned tariffs has brought significant relief, the postpause outlook remains uncertain," the WEF report said of its findings.

"The volatility of decision-making has [also] triggered questions about the continuing reliability and predictability of economic policy in the US."

And while Trump's trade crisis is destabilizing the world, it's having a particularly negative effect in the US, according to economists responding to the WEF's survey. Expectations for the US economy for 2025 "were optimistic" prior to April's tariff circus, but economists have changed their tune. 

The survey found that 78 percent believe US economic growth will be weak or very weak, while every single respondent predicted at least moderate inflation. Seventy-nine percent believed US inflation would be high this year. 

With the US's role in the world undergoing a seismic shift, geopolitical tensions are increasing as well. That's leading to a spike in defense spending that 73 percent of respondents believe will cut into public investments like infrastructure, which couldn't come at a worse moment considering the pressing need to shore up energy grids amid the proliferation of datacenters to train and run AI. 

The AI finger on an already wobbly economic scale

"The extraordinary speed of the AI revolution is a potential source of further short-term volatility as well as longer-term structural shifts in the global economy," the WEF said in the report. 

While economists' opinion of the impact AI will have on commerce in 2025 is uncertain, and with the increase on GDP expected to be minimal (in the range of 0-5 percent), the technology is nonetheless set to further disrupt the balancing act that is global affairs.

First up are job losses: 47 percent of economists responding to the survey expect jobs to be lost due to AI, while only 19 percent expect job gains - and just "modest" ones at that. Most (68 percent) believe AI will be used primarily to automate tasks. 

As for how AI could harm the global economy, 53 percent of economists cite disinformation and societal destabilization as the biggest risk posed, followed by concentration of market power in fewer hands (47 percent). 

Dueling decisions

Eighty-nine percent of economists said that it's important for governments to increase investment in AI infrastructure if they want to ensure AI growth in their economies, and 86 percent said governments need to push companies across key industries to adopt the technology. 

Here's where things get tricky: Businesses and governments need to work in tandem to foster AI development, according to the chief economists who provided data for WEF's report, but political fragmentation and its accompanying rise in defense spending cutting into infrastructure funds make it difficult to see the money being available for those needs. 

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Business leaders, respondents said, need to focus on adapting their processes to integrate AI and retraining workers to work with AI tools. Again, there's a tension with the findings we pointed out earlier: Long-term business decision making has been hamstrung by economic uncertainty, making it less likely businesses will take the steps they need to succeed with AI. 

"Businesses now face the challenge of adapting simultaneously on two fronts: responding to shifting geoeconomic realities while embracing rapid technological change," the WEF concluded in its report. 

"These steps are essential for navigating today's economic headwinds and securing long-term resilience and growth," WEF managing director Saadia Zahidi said in a statement accompanying the study.

Whether anyone will have the funding, forethought or follow-through to do what they have to is the big uncertainty. ®