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The Global Recovery Is Faltering

Even as inflationary pressures ease, geopolitical tensions and structural factors such as unfavorable demographics and high debt levels have taken a toll on household and business confidence worldwide. The challenge for governments is to rebuild confidence and enhance productivity, which remain essential to getting the global recovery back on track.

ITHACA – The world economy is losing momentum as its major growth engines decelerate and a confluence of short-term factors and long-term constraints – including geopolitical tensions, high public-debt levels, and aging populations – begin to bite. The latest update to the Brookings-Financial Times Tracking Indexes for the Global Economic Recovery (TIGER) shows that economic activity is weakening across the board. Despite relatively favorable financial-market performance earlier this year, consumer and business confidence have taken a major hit.

While the United States continues to post steady GDP growth, other advanced economies are in a parlous state, facing dismal growth prospects or even teetering on the edge of recession. Emerging-market economies are generally in better shape, with China showing some signs of stabilization, and India continuing to power ahead.

Fortunately, inflationary pressures are easing around the world, but rising energy prices and widening geopolitical fissures could halt this progress and hamper growth. Equity markets rallied for a few months, owing partly to optimism about the productivity gains from technological innovation, but concerns about growth prospects have begun to weigh on their performance.