Panetta: Global economy resilient, faces new risks

In 2025, global GDP grew by an unexpected 3.4 percent, half a point more than anticipated, despite ongoing conflicts and tighter US tariffs.

Artificial intelligence (AI) and strong growth in the US (over 2 percent) and China (5 percent) were key drivers.

China's growth, however, relied on lowering prices in foreign markets, a strategy deemed fragile long-term.

Financial markets showed optimism, leading to high equity valuations and low risk premia, but also signs of over-optimism in some segments.

This situation dramatically shifted with the conflict in the Persian Gulf, blocking the Strait of Hormuz and causing strong price increases for energy commodities, particularly oil across all geographical areas.

The energy price surge is extending to raw materials like fertilizers, with full effects on food prices expected early next year, aggravating food insecurity.

Consumer prices and short-term inflation expectations are rising globally, exacerbating interest rate increases.

The IMF forecasts global growth to drop to 3.1 percent in 2026, with inflation at 4.4 percent, assuming a rapid conflict resolution.

Global trade grew 5 percent in 2025, partly due to geographical re-direction of flows and AI-related goods.

However, protectionist policies have not corrected imbalances, with 90 percent of US tariffs passed to consumers and China strengthening its trade presence.

The IMF warns that persistently high trade barriers could reduce world trade growth to below 3 percent in 2026, a slowdown that the Gulf conflict could exacerbate.