Resilience Amid Risks: Understanding the Global Economy's Surprising Strength

Nouriel Roubini attributes the global economy's resilience to four key factors. Despite rising risks and uncertainties, global growth has held up well.

The first factor is market discipline forcing policymakers to reconsider their actions. The Trump administration's tariff increases sparked a market reaction that led them to negotiate reductions, resulting in average tariffs dropping from 21.5% to 9.6%. Similarly, the Iran War caused an oil-price shock and stock-market correction, prompting a fragile ceasefire.

The second factor is adjustments in trade patterns, global supply chains, and production factors. The world's increased dependence on new producers and energy sources mitigated the impact of the tariff and oil shocks. A drawdown in strategic oil reserves and demand destruction also dampened the effects.

The third factor is policy responses to mitigate the impact of these shocks. Fiscal and monetary easing in 2025 helped absorb some of the damage, followed by monetary tightening this year to keep inflation expectations anchored.

The fourth and most important factor is the massive, positive long-term aggregate supply shock from the AI investment boom. The US and China are leading this cycle, but other countries in Asia and Europe are also benefiting.