A fragile global recovery: what it means for Pakistan?
With global growth projected at 3.0 percent for 2025 and 3.1 percent in 2026, the headline numbers may seem encouraging. However, the underlying story reveals a more fragile situation: much of the resilience is not rooted in stable and strong long-term economic fundamentals.
Rather, it is driven by front-loaded trade activities in anticipation of higher tariff, short-term tariff adjustments, a weaker US dollar, and inconsistent financial conditions, where credit access and market confidence remain unstable.
Recent developments on trade policy further complicate the picture. On May 12, the US and China agreed to lower tariffs imposed after the April 2 escalation, for a 90-day period ending August 12. The US also extended its broader tariff pause for most trading partners to August 1, beyond the earlier July 9 deadline.
However, warning letters issued by the US administration in July threaten even higher tariffs than those announced in April, creating renewed uncertainty.
Meanwhile, legal proceedings are ongoing in the US regarding the use of the International Emergency Economic Powers Act (IEEPA) as a legal basis for these tariff actions.
In the US, the passage of the One Big Beautiful Bill Act (OBBBA) in July brought short-term clarity to fiscal policy but raised concerns about long-term fiscal sustainability. Combined with tariff-induced trade disruptions, this has added to uncertainty in the overall growth outlook.
The US current account balance temporarily benefits from these trade measures; the country is still facing widening fiscal deficits. It was initially expected that the combination of tariffs and larger fiscal deficits would lead to an appreciation of the US dollar. However, contrary to expectations, the dollar has depreciated further, adding another layer of complexity to the policy environment.
Real GDP decreased in the US at an annualized rate of 0.5 percent. Imports and business investment surged, especially in information processing equipment. These patterns were consistent with aggressive front loading by US firms and households ahead of expected higher prices induced by tariffs.
Meanwhile, China's stronger-than-expected growth at 4.8 percent, driven by exports and a depreciating renminbi closely tracking the dollar and with declining sales to the US, more than offset by sales to the rest of the world.
The Euro area shows signs of stability by 1.0 percent acceleration in 2025, but only due to outliers like Ireland. The upward revision reflects a historically large increase in Irish pharmaceutical exports to the US resulting from front-loading and the opening of new production facilities. All this points to a distorted recovery; it may not last unless deeper structural reforms and trade peace are achieved.
At the same time, inflation trends are sending mixed signals. While global headline inflation has ticked up slightly, core inflation has eased and now sits below 2 percent, particularly in several advanced economies. In the US, however, there are early signs that tariff pass-through and a weaker dollar are pushing up prices in import-sensitive categories. For emerging markets, this evolving inflation landscape creates opportunities for policy easing, but the path remains delicate.
Compounding these economic risks are ongoing geopolitical tensions, which continue to weigh heavily on investor confidence and global cooperation. Conflicts in key regions, coupled with rising protectionism and strategic decoupling in trade and technology, are fragmenting the global economy in ways that make collective action more difficult — at a time when multilateralism is most needed.
So where does Pakistan stand?
Pakistan's economy is projected to grow at 2.7 percent in 2025, a slight upward revision from April's WEO forecast. Though this might appear modest, it reflects cautious optimism amid a tough environment. Pakistan's improvement is backed by macroeconomic stabilization efforts, easing inflation, and a weaker dollar that offers some space for monetary adjustments.
However, Pakistan's limited export competitiveness, fragile fiscal buffers, and vulnerability to external shocks like tariff escalation or oil price volatility mean it must tread carefully.
Pakistan's real GDP growth is projected to rise further to 3.6 percent in 2026, indicating a gradual recovery trajectory. While still below potential, this two-year outlook reflects growing policy space and an opportunity to build macroeconomic resilience if reforms are sustained.
Moreover, the global shift towards protectionism and uncertainty in trade policies poses real threats to export-dependent economies. The IMF rightly warns that rising tariff barriers, especially sector-specific ones like on electronics or steel, could disrupt supply chains and global trade flows. For Pakistan still trying to integrate into global value chains, such fragmentation could be a major setback. Additionally, higher US term premiums and tightening global financial conditions could restrict access to foreign capital, putting further pressure on Pakistan's already strained balance of payments.
Yet, amid these concerns, opportunity glimmers. If Pakistan can leverage this moment to strengthen its domestic competitiveness, diversify exports, and invest in labour skills and technology adoption, and capitalize on its strong remittance inflows, estimated at a record USD 38.3 billion in FY2025, which now serve as a backbone of Pakistan's economic resilience, it could be better positioned for a more resilient future.
Given that a large portion of these remittances comes from unskilled labour abroad, investing in the development of skilled workers could not only increase the volume and quality of remittances but also enhance the global competitiveness of Pakistani labour.
Fiscal discipline targeted industrial policy, and multilateral cooperation especially with regional partners are essential to shield itself from external turbulence. Furthermore, SBP kept policy rate at 11 percent is also cautious move to stabilize the economy.
For Pakistan, the call is even more urgent: pragmatic regional cooperation, structural labour and education reforms, and credible fiscal consolidation are essential to lifting its medium-term growth prospects. Central banks must remain independent and alert to inflation dynamics, especially under persistent trade tensions.
Strengthening the country's competitiveness through targeted industrial policy, smart digitalization, and skill development can help ensure that Pakistan not only survives global shocks but thrives through them; the world remains one policy misstep away from fragility.
For Pakistan, the path forward lies not in betting on external stability but in building internal strength through smart reforms, targeted investment, and renewed focus on inclusive, export-led growth.
Copyright Business Recorder, 2025
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The recent IMF's World Economic Outlook 2025 presents a picture of a global economy standing steady but still shadowed by uncertainty. With global growth projected at 3.0 percent for 2025 and 3.1 percent in 2026, the headline numbers may seem encouraging. However, the underlying story reveals a more fragile situation: much of the resilience is not rooted in stable and strong long-term economic fundamentals. Rather, it is driven by front-loaded trade activities in anticipation of higher tariff, short-term tariff adjustments, a weaker US dollar, and inconsistent financial conditions, where credit access and market confidence remain unstable. Recent developments on trade policy further complicate the picture. On May 12, the US and China agreed to lower tariffs imposed after the April 2 escalation, for a 90-day period ending August 12. The US also extended its broader tariff pause for most trading partners to August 1, beyond the earlier July 9 deadline. 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However, contrary to expectations, the dollar has depreciated further, adding another layer of complexity to the policy environment. Real GDP decreased in the US at an annualized rate of 0.5 percent. Imports and business investment surged, especially in information processing equipment. These patterns were consistent with aggressive front loading by US firms and households ahead of expected higher prices induced by tariffs. Meanwhile, China's stronger-than-expected growth at 4.8 percent, driven by exports and a depreciating renminbi closely tracking the dollar and with declining sales to the US, more than offset by sales to the rest of the world. The Euro area shows signs of stability by 1.0 percent acceleration in 2025, but only due to outliers like Ireland. The upward revision reflects a historically large increase in Irish pharmaceutical exports to the US resulting from front-loading and the opening of new production facilities. All this points to a distorted recovery; it may not last unless deeper structural reforms and trade peace are achieved. At the same time, inflation trends are sending mixed signals. While global headline inflation has ticked up slightly, core inflation has eased and now sits below 2 percent, particularly in several advanced economies. In the US, however, there are early signs that tariff pass-through and a weaker dollar are pushing up prices in import-sensitive categories. For emerging markets, this evolving inflation landscape creates opportunities for policy easing, but the path remains delicate. Compounding these economic risks are ongoing geopolitical tensions, which continue to weigh heavily on investor confidence and global cooperation. Conflicts in key regions, coupled with rising protectionism and strategic decoupling in trade and technology, are fragmenting the global economy in ways that make collective action more difficult — at a time when multilateralism is most needed. 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The IMF rightly warns that rising tariff barriers, especially sector-specific ones like on electronics or steel, could disrupt supply chains and global trade flows. For Pakistan still trying to integrate into global value chains, such fragmentation could be a major setback. Additionally, higher US term premiums and tightening global financial conditions could restrict access to foreign capital, putting further pressure on Pakistan's already strained balance of payments. Yet, amid these concerns, opportunity glimmers. If Pakistan can leverage this moment to strengthen its domestic competitiveness, diversify exports, and invest in labour skills and technology adoption, and capitalize on its strong remittance inflows, estimated at a record USD 38.3 billion in FY2025, which now serve as a backbone of Pakistan's economic resilience, it could be better positioned for a more resilient future. Given that a large portion of these remittances comes from unskilled labour abroad, investing in the development of skilled workers could not only increase the volume and quality of remittances but also enhance the global competitiveness of Pakistani labour. Fiscal discipline targeted industrial policy, and multilateral cooperation especially with regional partners are essential to shield itself from external turbulence. Furthermore, SBP kept policy rate at 11 percent is also cautious move to stabilize the economy. For Pakistan, the call is even more urgent: pragmatic regional cooperation, structural labour and education reforms, and credible fiscal consolidation are essential to lifting its medium-term growth prospects. Central banks must remain independent and alert to inflation dynamics, especially under persistent trade tensions. Strengthening the country's competitiveness through targeted industrial policy, smart digitalization, and skill development can help ensure that Pakistan not only survives global shocks but thrives through them; the world remains one policy misstep away from fragility. For Pakistan, the path forward lies not in betting on external stability but in building internal strength through smart reforms, targeted investment, and renewed focus on inclusive, export-led growth. Copyright Business Recorder, 2025
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The aim was to enhance property rights and encourage private ownership as well as encourage the use of property as collateral in transactions. Transparency in real estate transactions was a key component for attracting foreign investment in Russia. Putin knew that his No 1 priority was economic growth. Despite sharply lowering tax rates across the broad, tax revenue as a share of GDP expanded robustly under the new tax regime. Tax revenue increased 51% in 2001 over collections in 2000, expanding from 11% to 16% of GDP. The Russian economy continued to grow robustly, which led to budget surpluses and the government's fiscal balance sheet in a very positive position. Annual growth went up from 2% to an average of 7% and the budget deficit from 2% to a surplus of 3% of GDP. Another key area of concern regarding Russia's future was its foreign debt burden. The following three years of prosperity, starting in 2001, allowed the government to accelerate its external debt repayments, in such a way that the external debt, which was at 130% of GDP in 1999, went down to 50%. Putin's most significant accomplishments had been the achievement of political stability. Such stability served as a catalyst for a revised risk analysis concerning foreign and domestic investment in Russia, integrating the country into the modern industrial global economy by transitioning from a centrally controlled command economy to a market-based economy. The positive economic development in Russia led to a consistent upgrading of its sovereign credit rating from CCC- (1998) to B+ (2002) and an outlook upgrade from stable to positive, with reform momentum and the commitment to timely debt service cited as key factors for the change in the outlook. Russia's renaissance is proof that supply-side economic reforms and the flat tax works. The odds of Russian recovery, according to the IMF, were slim to none. The players, however, who bet on Russian red would have broken the bank. Russia had risen from ashes to establish herself as one of the global economy's bright spots. Even in 2001 with weaker oil markets, Russian equities significantly outperformed, the ruble remained stable and the economy continued to expand. Now, if only we in Pakistan could import these supply-side flat tax reforms, keeping the IMF at bay, to our shores! The writer is a philanthropist and an economist based in Belgium
