Global Economy in Peril! SBI Warns of Investment Chill Amid Geopolitical Tensions

Global businesses are hitting the brakes on major investment decisions as escalating geopolitical tensions and trade negotiation setbacks fuel record levels of uncertainty, according to a new report released by SBI Funds Management.

The report highlights that the Global Economic Policy Uncertainty Index, a widely tracked measure of concerns around policymaking, has soared to its highest level since its inception in April 1997. The index, adjusted using current price GDP weights, has crossed the critical 600 mark, reflecting "extremely high levels of uncertainty in the global economy," with a particularly sharp rise observed in April 2025.

"Global uncertainty remains elevated amidst geopolitical tensions and trade negotiation setbacks," the report states. While some moderation was seen in recent weeks, uncertainty is still significantly higher than the average of the last decade.

Sudden Policy Shifts

Businesses, wary of sudden policy shifts, tariff escalations, and retaliatory trade measures, are choosing to delay or scale back investment plans. The report notes that companies fear adverse policy changes could derail their long-term strategies, especially as trade talks with major partners remain fraught and unpredictable.

Adding to the anxiety is speculation around whether Supreme Courts in key economies might overturn certain tariffs currently in place. This legal uncertainty compounds the challenges faced by companies planning large-scale capital expenditures.

SBI Funds Management also points to a series of global flashpoints that have steadily worsened the investment climate over the years. These include the US-China trade war launched under President Trump, Brexit, the COVID-19 pandemic, the Russia-Ukraine war, and ongoing tensions in the Middle East. Each of these events has contributed to the relentless climb in the uncertainty index.

The report warns that deteriorating business sentiment is typically linked to weaker capex activity, as firms opt to preserve cash and avoid risky bets in an unstable environment. Additionally, government infrastructure spending, which had offered some relief, is now "plateauing," further limiting the stimulus for private-sector investment.

Crucially, the SBI report underlines that even the threat of tariffs—regardless of whether they are ultimately imposed—can dampen the global business cycle. This chilling effect is seen as a major barrier to the global growth rebound that policymakers have been hoping for.

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