This week’s cover

Even after three successive weeks of covers about the war between Israel and Hamas, only a story of global importance could have a greater claim to the cover of this issue. One of those stories is the fate of the world economy, which is doing better than even optimists had expected. Although we continue to devote a lot of space in our pages to the Middle East, we thought that it was urgent to point out that the good times cannot last.

The world economy cannot accomplish the many things that markets currently expect of it: dodging recession, reducing inflation and coping with mighty debts and high interest rates all at the same time. Trouble lies ahead.

The key to this argument is today’s high interest rates. Growth keeps them high, but the burden of sustained high rates will increasingly feed through to consumers, firms and governments. Eventually, demand will suffer.

An early thought for the cover image was to revive an old idea from February 2022, which shows interest rates all the way up in orbit, reflected in the visor of an astronaut. It’s a lovely image, but it has two related problems. Number one is that a percentage sign on its own means nothing to readers. Number two is that the solution to Number one is to make sure the cover line includes the term “interest rates”—except this will persuade all but our wonkiest readers that we are fixated on something narrow and technical.

Another idea was to show a house perched precariously on a precipice, supported only by a crazy framework of struts. It nodded to our interest-rate theme with a % weather vane—perfectly pitched for policy wonks.

It nicely got across the sense of impending doom. Again, however, there was a problem. After the global financial crisis of 2007-09 our brains are wired to see the word “economy” next to an image of a house as a warning about a property crash. Although high borrowing costs will indeed hit inflation-adjusted house prices, our story is much broader than that.

We considered reheating another old idea, this time a gravity-defying anvil being wrangled by a trio of consumers. It said that the economy is about to fall to earth. It was a fine image, but a bit like last night’s dinner: we could not look at it without our thoughts turning to something fresh.

The situation is perilous. American consumers have been relying on savings they built up during the pandemic, but when they are gone high interest rates will start to hurt. In Europe and America business bankruptcies are rising. Even companies that are locked in low rates by issuing long-term debt will face higher financing costs. Large government deficits have added to the world economy’s sugar rush, yet government debt in the rich world is now higher as a share of GDP than at any time since after the Napoleonic wars.

One design, showing a tightrope-walker teetering over a giant bed of nails, tried to reflect this sense of peril. Unfortunately, the spikes looked like the noses of artillery shells. It was as if we were saying that the world economy is threatened by war. In fact, even if peace were to break out, all its contradictions would remain.

Perhaps we could focus on fragility instead. A beautiful image of a butterfly with a map on its wings was our version of the world in a grain of sand.

The signs of strain are already in view. Janet Yellen, America’s treasury secretary, has felt obliged to assert that Treasuries carry no risk premium, and Jerome Powell, chairman of the Federal Reserve, has insisted that his bank would never cut rates and let inflation rip to ease pressure on the government’s budget. The European Central Bank’s bondholdings are becoming skewed towards the Italian government debt that it tacitly backstops. Even when Japanese government-bond yields were a paltry 0.8% last year, 8% of the budget went on interest payments.

Instead, we went with a levitating dachshund. After three weeks dedicated to warfare and the terrible harm it brings, something a bit silly signalled our shift in focus. The woman and her dog are walking tall, but there’s plenty to drag them down: Donald Trump threatens swingeing tariffs if he becomes president; industrial policy is messing up markets; defence, ageing populations and the green transition are eating up government budgets. Anyone betting that the world economy can just keep carrying on is taking a huge gamble.■

Leader: The world economy is defying gravity. That cannot last
Briefing: Markets think interest rates could stay high for a decade or more
Finance and economics: How Japan poses a threat to the global financial system