A stormy global economy ahead, with some linings

Shortly after the first announcement of US tariffs, McKinsey conducted a global survey on how business professionals view the economic conditions ahead. Although a majority of global business leaders still express optimism, there is a decreasing proportion of them that do so, and an overall increased concern over trade, now matching longstanding worries about geopolitical instability.

An international reach

For the past three years — in the aftermath of Covid and around the time that Russian invaded Ukraine — geopolitical instability has been the most-cited risk to the global economy, with more than 60% of respondents saying so each survey.

But in the latest results, the share of respondents citing changes in trade policy and relationships as a major disruption has more than doubled over the last two quarters, putting it on par with geopolitical concerns at close to 60%. Furthermore, unlike last quarter, respondents from every region pointed at either one of these factors as the biggest risk to the economy, indicating that everyone is feeling the effects.

This marked shift in perception is also seen at the corporate level: geopolitical instability has overtaken weak demand, the dominant concern for the past three quarters, as the number one risk to company performance. Changes in trade and environment are not far behind. As compared to half a year ago, nearly twice as many respondents seeing trade as a top risk to their companies’ performance. Clearly, relationships and politics are a large concern both across the world and within each individual country. 

Potential storm ahead

Overall, more than half of respondents expect global conditions to worsen, and the report claims that respondents see a global recession as increasingly likely. Nearly 68% of respondents predicted a recession scenario as most likely to occur in 2026, and out of those respondents, almost 90% of them believed that the recession would be demand-led, where rising uncertainty causes consumer confidence, and thus spending, to drop. 

Fortunately, while respondents are hesitant about the global economy, they are more optimistic about the state of their own economies, believing that improvement in their countries is more likely than a decline. However, only 39% of respondents are expecting improvement, and 55% predict profit growth. In comparison, half of the respondents predict increasing unemployment, a proportion that has not been seen since the depths of the pandemic in 2020. 

Some silver among the gray

With every dark cloud, a silver lining does appear. Around half of respondents did not view disruptions in trade as an impediment: 23% saw them as an opportunity, while 27% believed that opportunity and risk as equivalent. 

These findings underscore a pivotal moment for global business leaders, who must navigate an increasingly complex and uncertain landscape shaped both by mounting geopolitical tensions, and ever shifting trade dynamics. As caution replaces the optimism of the post-pandemic years, companies may need to recalibrate their strategies and brace themselves in the face of evolving global forces.