A major new report is warning of a global investment drought to come, predicting a significant slump in capital spending as the delayed effects of trade wars and financial market risks take hold. This expected drought is the key reason for the report’s “dim” long-term outlook, which overshadows an upgrade to this year’s growth forecast.
The analysis argues that the “unexpected resilience” of the global economy, which led to a 3.2% growth forecast for 2025, is a temporary phenomenon. It has been propped up by consumer spending and recent investment in specific sectors like AI. However, the foundations for broad-based, long-term business investment are eroding.
The primary cause of the coming drought is the chilling effect of US-led tariffs on business confidence. The report uses the UK’s post-Brexit investment decline as a model, suggesting that companies worldwide will now become more cautious about committing capital in an uncertain trade environment.
A second major threat to investment is the state of the financial markets. The report warns that “stretched valuations,” particularly in the AI sector, could lead to a sharp “correction.” A significant drop in share prices would make it more difficult and expensive for companies to raise capital, further discouraging investment.
For countries like the UK, which is already grappling with high inflation, a global investment drought would be a major blow to its long-term growth prospects. The report serves as a stark warning that the capital that fuels economic expansion is at risk of drying up.