Trade uncertainty may decrease global investment by 2%

Economists warn that ongoing trade wars could significantly decrease global investment. A report from Oxford Economics predicts a 2% drop in business investment in the European Union and the United Kingdom this year. The uncertainty created by trade policies from the Trump administration in the United States is affecting investment plans across major economies. Businesses are becoming more cautious in their investment decisions due to the unpredictable trade environment. Investment levels in 2023 were already at 22% of GDP in China, 15% in the US, 12% in the Eurozone, and 10% in the UK. The report suggests that the expected decline will have a noticeable impact on GDP growth, although it will not be catastrophic. Rising tariffs also contribute to these issues. President Trump has proposed a 200% tariff on EU alcohol imports, while the European Commission is threatening to impose countermeasures worth up to €26 billion against US goods. Countries that rely heavily on trade, such as Luxembourg, Slovakia, and Bulgaria, are likely to be the hardest hit by this uncertainty. Larger economies like Belgium and Italy will also face significant challenges. Investment-related decisions, such as hiring and research spending, are being postponed as firms navigate the unpredictable market conditions. This can lead to lower sales of goods and services, contributing to a cycle of reduced business confidence and economic contraction. The report outlines four scenarios for the future based on the unpredictability of trade policies. In an optimistic case where uncertainty decreases rapidly, investments could rebound next year. Conversely, if tariffs rise and uncertainty persists, global investment could decline by as much as 10% over several years. The worst-case scenario includes a 20% drop in investments in China and a 14% loss in the US by 2029. The report suggests that reducing trade policy uncertainty or implementing supportive financial measures could help stabilize the global economy.