Economic Buzz: Global economy is in a state of flux, says RBI

The global economy is in a state of flux, reeling from the twin shocks of trade policy uncertainties and a spike in geo-political tensions. The optimism from a temporary tariff freeze and trade deals has kept financial market sentiments buoyed in May and early-June 2025. However, following the outbreak of the Iran-Israel conflict, heightened uncertainty and volatility have once again gripped financial markets.
Meanwhile, the OECD and World Bank reports released in June have reaffirmed the possibility of a marked deterioration in the medium-term global economic prospects amidst rising trade barriers and restrictions.
Reflecting the trade policy uncertainties, high-frequency indicators on global manufacturing activity for the month of May contracted for the second consecutive month. Amidst heightened concerns on their domestic growth outlook, several central banks utilised the headroom provided by lower inflation prints to further reduce policy rates.

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