‘Seismic changes’ cloud global economy, analyst says

TAMPA, Fla. — The global economy is entering a period of profound uncertainty as geopolitical conflict, shifting trade dynamics and rapid technological change upend traditional forecasting models.

To be blunt, “we are clearly at a pivotal moment,” Bernard Baumahl, chief global economist at the Economic Outlook Group, told a LIMRA audience Tuesday.

Baumahl delivered a dense hour-long assessment of the world economy as part of the LIMRA Life Insurance and Annuity Conference.

Current economic anxiety is being driven by “seismic changes” to the global energy supply chain following conflict in the Middle East. But the broader concern, Baumahl said, is that economic systems have diverged so far from historical norms that reliable forecasting has become increasingly difficult.

“The economic forecast models are built for a world that no longer exists,” he said.

Over the past 15 months, several major disruptions have converged: the erosion of the post-World War II liberal trade order, ongoing wars in Europe and the Middle East involving nuclear powers, and signs of fragmentation within NATO.

At the same time, the emergence of artificial intelligence is reshaping the structure of the U.S. economy, while demographic shifts and declining immigration are slowing population growth.

Compounding those pressures, the United States and other industrialized nations are grappling with historically high levels of public debt, Baumahl explained, limiting their ability to respond to economic slowdowns.

Key indicators outlined

The analyst outlined several key indicators to watch, including the duration and scope of the Middle East conflict and its impact on energy infrastructure. Damage to oil and gas facilities could keep prices elevated, increasing inflationary pressures.

Oil prices could remain above $100 per barrel in a prolonged conflict scenario, with inflation potentially rising to 4% or higher, Baumahl said. In a more severe case, prices could reach $200 per barrel, significantly increasing the likelihood of a recession.

Despite these risks, the U.S. economy is still expected to grow about 1.9% in 2026, down from earlier projections of roughly 2.5%, he said. Continued fiscal stimulus, strong business investment in artificial intelligence and infrastructure, and adjustments to tariffs are expected to support growth.

“We do not see a recession just yet,” Baumahl said, although he estimated the probability of a downturn at 30% to 35%.

Consumer spending a concern

Consumer behavior remains a central concern, as household spending accounts for nearly 70% of economic activity. While spending has remained resilient, it is increasingly being supported by rising debt rather than income growth, Baumahl pointed out.

Total U.S. consumer debt stands at a record $18.78 trillion, with elevated credit card interest rates adding financial strain. Delinquencies on credit cards and auto loans are also rising, according to Federal Reserve data.

At the same time, consumer sentiment has weakened sharply. A recent survey by the University of Michigan showed optimism at its lowest level in more than 70 years, Baumahl said.

Still, the labor market has remained relatively stable, with unemployment around 4.3%. Economists are closely monitoring jobless claims and unemployment levels for signs of deterioration, Baumahl stressed.

Inflation remains a key uncertainty. Consumer prices rose 3.3% in March, the highest level in two years, and could climb further depending on energy costs and supply disruptions.

The Federal Reserve’s response will depend on whether inflation or employment deviates more significantly from its targets, Baumahl said. The central bank may raise interest rates modestly in the coming months to contain inflation, he added, despite political pressure to ease policy.

“Nobody wants to see the Federal Reserve squander its independence,” Baumahl said.

AI will disrupt global economy

Artificial intelligence is emerging as a transformative force, driving massive investment and productivity gains. However, it also poses risks to employment and economic stability, Baumahl said.

The analyst warned of a potential mismatch between productivity gains and job creation, raising questions about future consumer demand if fewer workers are needed.

“It represents a whole new epoch in human history, and I don’t think we can possibly fathom what the consequences or what the fallout or what the repercussions will be over the course of the next five to 10 years,” Baumahl said.

Beyond economic indicators, he highlighted growing geopolitical risks, including the “weaponization of geography” through control of key trade routes, as well as tensions involving China, Russia and Iran.

Baumahl also warned that declining fertility rates and restricted immigration could lead to the first contraction in U.S. population growth since 1918, further complicating long-term economic prospects.

Foreign investment in U.S. debt is another concern, as the country relies heavily on overseas buyers to finance its growing deficits, Baumahl explained.

While the economy continues to expand, momentum is slowing and risks are mounting across multiple fronts. Inflation, geopolitical instability and structural changes in labor and technology are creating an unusually complex environment.

“You cannot plan for uncertainty, but you can plan for risk,” Baumahl said.

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