Tariff pause triggers modest recovery in business outlook, survey shows

Oxford Economics' June Global Risk Survey indicates a partial recovery in business sentiment due to eased tariff escalations, with the perceived probability of a global recession this year falling to under 15% from over 25% in April; however, growth expectations remain subdued, with the Global Business Sentiment Index indicating growth of 1.5% by late 2025, below previous forecasts. Trade tensions remain a primary concern, with 78% of respondents identifying a global trade war as a significant risk, while expectations for monetary easing from the Federal Reserve and Bank of England remain modest.

Analysis

Business sentiment towards the global economy has shown a partial recovery, according to Oxford Economics' June Global Risk Survey conducted between May 28 and June 10 among 106 businesses. The perceived probability of a global recession this year has notably decreased to under 15%, a significant drop from over 25% in April, primarily attributed to a pause in tariff escalations. Despite this improvement, overall growth expectations remain subdued; the Global Business Sentiment Index points to a global growth rate of 1.5% by late 2025, which is 0.3 percentage points below Oxford Economics’ baseline forecast and up to 1 percentage point lower than levels seen in January. While only 10% of respondents reported a significantly more negative view on global growth prospects in the past month, compared to 51% in April, and fewer than 10% see risks as heavily skewed to the downside (down from 36%), substantial improvements in outlook are limited. This cautious optimism is juxtaposed with Oxford Economics' own baseline forecast revision, which lowered expected global growth by 0.2 percentage points for 2025 and 0.4 points for 2026. Trade tensions continue to be the dominant concern, with 78% of respondents identifying a global trade war as a very significant risk over the next two years, an increase from 71% three months prior. Businesses assign roughly equal probabilities, around one-third each, to three distinct alternative scenarios: a worst-case trade war, a best-case scenario with lowered tariffs, or a market correction driven by tighter financial conditions. Furthermore, expectations for monetary easing are modest, with respondents anticipating only two to three additional 25-basis-point interest rate cuts from the U.S. Federal Reserve by the end of 2026, approximately half the easing projected in Oxford Economics’ baseline, and significantly less easing is expected from the Bank of England.

Key Decisions for Investors

• Investors should acknowledge the improved business sentiment and reduced near-term recession risk, but maintain a cautious stance due to subdued global growth expectations that remain below earlier forecasts and official baselines, largely driven by persistent trade uncertainties.
• The significant divergence between business expectations for modest monetary easing (e.g., two to three Fed cuts by end of 2026) and Oxford Economics' more dovish baseline projection warrants close monitoring of central bank communications, as less aggressive rate cuts than anticipated could impact asset valuations.
• Given that 78% of surveyed businesses identify a global trade war as a very significant risk, an increase from previous surveys, investors should assess and potentially rebalance portfolio exposure to sectors highly sensitive to international trade disruptions and consider strategies to mitigate tariff-related impacts.
• The roughly equal probability assigned by businesses to starkly different macroeconomic scenarios—a severe trade war, a positive tariff reduction, or a market correction—highlights the importance of stress-testing portfolios and maintaining flexibility to navigate potential market volatility stemming from these divergent outcomes.