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The Five Main Drivers of Global Economic Uncertainty

The ongoing conflict in the Middle East is just one of several economic and geopolitical trends darkening the outlook for global growth. But while the immediate future seems bleak and could get bleaker, the good news is that we have the capacity to turn today’s vicious cycles into virtuous ones.

CAMBRIDGE – Businesses, governments, and investors were already navigating a foggy global landscape before the tragic events unfolding in the Middle East. But the horrible conflict between Hamas and Israel, which has already led to enormous suffering and claimed the lives of thousands of civilians, including so many children, has introduced a new layer of uncertainty for the global economy, the subject of this commentary. Even in the highly unlikely event that the geopolitical situation improves rapidly in the region and beyond, a deep sense of uncertainty will remain, driven by five economic and financial factors.

First, the global economy’s major growth engines are currently under strain. With Europe teetering on the brink of recession and China stalling, the US economy has emerged as the main driver of global growth. This became particularly evident in the third quarter of 2023, with the United States’ growth estimates impressing once again.

But even America’s growth outlook is uncertain. Over the past 15 months, the consensus of analysts about the US economy’s direction has oscillated wildly between four scenarios: soft landing, hard landing, crash landing, and no landing. Although the prevailing view now is that the US is headed for a soft landing, forecasts may well shift toward a hard one over the coming weeks.