ISA Monthly Issues to Watch - October 2025
Political Tensions in the United States
The level of political unrest and tension in the United States has risen to extremely dangerous levels. With the recent acts of violence against politicians and political commentators, these tensions are transitioning to violence. For the Trump Administration, the answer has been to deploy US troops in mostly-Democratic-run cities that President Donald Trump claims are beset by crime. At the same time, the Trump Administration is carrying out one of the most forceful crackdowns on immigration ever seen in the United States. As a result, the world’s most-powerful country is now facing a level of internal political division that is wider than at any time since the late 1960s and early 1970s. Because of US’ power and influence, these internal tensions will have global ramifications.
Consumer Spending is Saving the Global Economy
For many of the world’s leading economies, recent economic results have been better than expected, despite all sorts of economic troubles that range from trade disputes to lingering inflationary pressures. However, in recent weeks, many economists have raised their growth forecasts for major economies such as the United States and India. The major reason for this has been resilient consumer spending growth, particularly in the United States. This consumer spending growth is being driven by a combination of rising wages and the high levels of disposable income of wealthier consumers. Nevertheless, it remains to be seen if this consumer spending growth will continue, particularly as consumer confidence levels are falling.
Russia’s Military and Economic Woes
Russia may be on the verge of two major setbacks that could severely damage President Vladimir Putin’s long-dominant position in that country. First, Russia has struggled to make gains on the ground around the strategic city of Pokrovsk in eastern Ukraine, despite sending many of its reserves to that long-running battle. With winter approaching, Russia may be on the verge of running out of time for any major territorial gains in Ukraine in 2025. Meanwhile, Russia’s economy looks increasingly to be on the verge of a major slowdown. While economic growth in Russia has already slowed this year, a severe recession now appears to be a distinct possibility as inflation is soaring. Such an economic crisis would be a major blow to Russia’s military operations in Ukraine.
Diverging Inflation Rates
Inflation rates in most areas of the world have fallen sharply from their peaks in 2022, when Covid-related disruptions led to soaring levels of inflation. However, this decline in inflation rates has come to an end in some economies, most notably the United States. Moreover, the impact of tariffs on inflation in the US has yet to be realized, but is expected to push inflation rates even higher in the coming months. Despite this fear, the Federal Reserve cut interest rates in the United States last month, and may do so again in the coming months, under pressure from the White House and a weakening job market. Elsewhere, inflation rates have trended downwards, particularly in Europe and Asia. Meanwhile, China will continue to battle the threat of deflation in the months ahead.
A Month Full of Elections
Nine countries will hold national elections in the month of October. In Europe, there will be two elections (in the Czech Republic and the Netherlands) in which right-wing populist parties are well ahead in the polls. In South America, there will be elections in two countries (Bolivia and Argentina) that are experiencing a high degree of political and economic volatility. Finally, there will be five national elections taking place across Africa in October (in Gabon, the Seychelles, Cameroon, the Ivory Coast and Tanzania), some of which will be characterized by crackdowns on the political opposition. In all cases, there are concerns over the health of democracy in not only these countries, but in some of the most important democracies in the world.
Is There an AI Bubble?
Artificial intelligence (AI) has been a leading driver of growth for the United States and Chinese economies this year. By some measures, AI has contributed more to US economic growth this year than consumer spending, highlighting its increasing importance. However, there are growing concerns that the massive investments in AI could create an AI bubble. Given the fact that many other sectors of the economy are struggling with trade and labor disruptions, a bursting of this AI bubble could have devastating consequences for the global economy. In fact, some economists are concerned that a potential bursting of the AI bubble would have a much larger impact on the global economy that the bursting of the dot-com bubble in the early 2000s.