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Two weeks of shutdown in the US is America talking itself into recession.
The problem with economic news is that it can be self-fulfilling.
If you paint a bad picture of the economy every time you turn on the TV, people will be pessimistic.
I know 20 to 30 firefighters who are actively searching for another place to go, because we're just done.
We're tired of this, man.
This is World Business Report from the BBC World Service.
I'm Ed Butler and today we're going to be looking at conflicting signs of the status of the US economy and why Donald Trump is bailing out Argentina.
First in the programme though, the International Monetary Fund, which has upgraded marginally its global economic outlook.
At its big half-yearly meeting in Washington, it said that President Trump's tariffs have actually been less damaging than it expected for the global economy.
It did warn, though, of risks ahead.
Overall, it upgraded growth forecasts to 3.2% for this year.
The IMF's chief economist, Pierre-Olivier Gorinchas, says the AI boom has certainly helped to prop up the global economy.
The tariff shock itself is smaller than initially feared, with many trade deals and exemptions.
Most countries also refrained from retaliation, keeping the trading system open.
And the private sector proved agile, front-loading imports and rerouting supply chains.
Second, financial conditions remain loose, in part because of a weaker dollar.
In some countries, such as Germany and China, fiscal policy turned expansionary.
And in the U.S., an AI and tech-driven investment is booming.
Well, they're at the meeting in Washington.
Our North American business correspondent, Michelle Flurry.
Hi, Michelle.
It sounds like the IMF is acknowledging that the US has done a lot better than expected since the Liberation Day, as it was called, back in April.
I mean, when the tariff regime was announced.
Yeah, I mean I think if you listen to the words of the sort of IMF managing director, Kristalina Georgieva, she said, you know she described things as resilient that the economies not just here in the United States but elsewhere around the world, have actually fared much better than expected given, as you mentioned, that April Day, Liberation Day, tariffs and kind of what everyone at the time was expecting.
So in that sense, that was the good news.
The bad news is that they say it's premature to say that the impact of tariffs sort of won't at some point hamper growth, that it takes time for these things to pass through.
And so they warn that could still lie ahead.
One of the other warnings when it came to the United States was that, you know, one of the bright spots has been AI and the big boom there and the kind of huge investments that tech companies are making in that right now.
And in some ways that has masked perhaps some underlying weakness in the US economy.
Yeah.
And is there any sense again and we've heard this from the IMF already, haven't we of a fears of a bubble within the AI boom?
So, I mean, I was speaking to the IMS chief economist.
I think you just played a clip of him just now.
And I asked him about the AI bubble and he said look, you know, I don't know if there is a bubble or not.
I'm not going to call that.
But he did draw parallels with the dotcom boom.
Now you remember, in the sort of mid 90s we saw that huge run up in tech stocks and sort of eventually that bubble burst again in kind of 99, 2000.
But the legacy of that bubble bursting was a lot of bankrupt companies and also some huge names like Amazon.
That kind of emerged and are still with us today.
So, you know, he's worrying, look, that could happen.
If investors suddenly sour on AI investments, we could have a disorderly kind of mess in the markets.
Right.
Meanwhile, of course, the US Senate is once again voting on a federal funding bill as the government hits two weeks into this shutdown in the US.
No expectation, I guess, that this is going to pass today.
And in fact, the House speaker has predicted, hasn't he, that it could become the longest shutdown in history.
This is kind of leading to, I guess, an increasing sense of anxiety amongst congressional leaders in terms of how it will affect the wider economy in the US.
I mean, you would think that's what would happen, but typically when it comes to politics, you kind of need more pain to force lawmakers back to the table and to come to some kind of agreement or some kind of compromise.
And right now, Republicans and Democrats still seem as far apart as ever.
So sort of the mood, quite pessimistic here in Washington.
And that's sort of on the domestic front.
And on the global front, of course, you've got this ratcheting up of tensions between the US and China, not helping with the mood here much either.
Indeed.
More of that later.
Thank you very much, Michel Fleury there in Washington.
Well, earlier I was speaking to William.
He's a federal firefighter who works on a US military base in the US state of Washington.
He's an essential worker, so he is required by law to turn up for work, even though his pay, like all the other federal workers, hundreds and thousands of them, is being held until this budget gets passed.
I asked him how the last two weeks of shutdown had been for him.
Pretty terrible.
I've been contacting my union president and the best we get information wise is both houses of the government have to come together about it today to fund at least the Department of Defense, which is where we get our pay from.
But we don't know what's going on.
And frankly, there are people in this country that don't even realize we are in a government shutdown.
It's like in the last two weeks, I've seen more stuff about Israel or the latest happenings in D.C.
No one cares that we're not being paid.
No one cares that the FAA workers are about to walk out or whatever that they were saying.
And it could get worse.
I guess because Mike Johnson and others are saying this could be a long shutdown.
Yeah.
And the air traffic controllers, you mentioned them.
Many of them are not turning up to work, which has caused.
I'm just wondering if that's happening where you are.
Are workers deciding that they can't stand it anymore because there isn't any pay?
They're simply going to call in sick and maybe try and find work somewhere else.
Right.
Yes.
Yeah.
I have a buddy who's door dashing to make ends meet.
I have a buddy who who's taken the sick leave route to get money from somewhere else.
I'm not exactly sure where, but.
So they're going for gig work, basically.
Yeah, essentially just any cash we can get now just to get like, either fuel in the tank or, you know, basic needs met.
Like again, for the next couple of months I'm going to be working at this fire academy to try and make ends meet.
And now that's my only source of income until things get figured out.
You don't think most Americans are even aware of what's happening to you?
Oh, I know most Americans are not aware.
If you turn on the news, God forbid, in this country, it's not even a talk about issue.
Like the government shutdown is either at the very bottom of your US and Canada news link or it doesn't exist at all.
And a lot of it is because some people just can't tolerate the news environment here or the government.
And if I'm not paying attention, then it's not bothering me.
But, you know, if no one cares, no one's contacting the representatives.
No one's trying to get this to be cleared.
Two weeks in, you're two weeks in now to this shutdown.
What happens when, let's say, we're here two more weeks time and there's still no pay for you or the other hundreds of thousands of federal workers who depend on the government paycheck?
You know, federal service used to be the ultimate method of employment in this country.
It was a long time that where I would hear that if you could make it into federal service you were set for life either retirement or stability.
And this is not the case anymore.
And if you have skills or certifications that you can bring into the private sector or even public service with municipalities outside of the federal government, you're going to.
And I know at least 20 to 30 firefighters just where I work who are actively searching for another place to go because we're just done.
We're tired of this, man.
The thoughts of William, a firefighter in the state of Washington.
He didn't want us to give his full name.
As we've been hearing, the context of this is a heated debate about the real state of the US economy.
Some experts are pointing to the strong recent growth numbers in America.
Others, though, are warning that this is purely a tech issue. investment play right now.
AI is booming.
They're seeing increasingly worrying signs elsewhere.
Take the chief economist at Moody's who's spoken of lower and middle income households hanging on by their fingertips.
More than a third of US states in actual recession right now, he reckons.
I've been hearing a different take from that, though, from Thomas Philipson.
He's a Swedish-born American economist who served as the acting chairman of the Council of Economic Advisers to Donald Trump in his first administration.
No, I think it's very, very healthy.
If you look at our second quarter, GDP was close to 4%, which is very, very good.
And the projections for the third quarter is close to the same number, essentially.
So we have very strong economic growth.
We have retail spending that is very high.
It was a little bit of a dip after the back-to-school spending drop, but on a yearly basis it's up 6.
More importantly, forward-looking indicators such as investment is very high in terms of growth.
Investors look forward before they invest.
And also markets are obviously breaking records in the US.
The one weak point is labour markets, which have been modest growth recently but that might be actually productivity effects, potentially by AI coming into labour markets.
Yeah, I mean.
The Fed Chair, Jay Powell, has spoken today of the downside risks, hasn't he?
Within the jobs market.
But I mean, then how do you account for this terrible state of consumer confidence?
Yeah, indications are.
I've been hearing that third or more of US states, many large parts, particularly the Midwest and other smaller states manufacturing states, are close to or are in recession.
So there's a very mixed picture, isn't there, in different regions of the country?
So I think most people get driven by their view of the economy by the news.
The problem with economic news is that it can be self-fulfilling.
If you paint a bad picture of the economy every time you turn on the TV, people will be pessimistic.
They will spend less, and that could actually be a self-fulfilling issue.
But if If you look at regular indicators of the economy, that turns out not to be true, essentially.
Is the shutdown significant in a grander economic sense?
Not really.
An average shutdown in the U.S. is about eight days, roughly.
I lived through the longest one when I was in the White House, which was about 31 days a month.
This one is already past two weeks, right?
Yeah, exactly.
So it's coming up to the... longer end.
I think there's a clear explanation why it's longer.
It's because Republicans are finding it almost to an advantage to have a shutdown if they want to cut the federal labor force.
So they are seeing some value in having a shutdown and therefore not agreeing to anything that the Democrats are proposing.
But the clear explanation Culprit for the shutdown is Democrats, who were Republicans, voted on continuous resolutions 13 times or something when Democrats were in power.
And now the Democrats are holding up essentially.
Yeah, I guess both sides point the finger at the other.
But I mean just sticking to the actual economics of this.
You're saying this will not have a lasting effect on the US economy, the US growth.
And indeed US job numbers, because obviously, if there are significant federal layoffs, that would add to the current four and a half percent of whatever it is of unemployment.
Well, it's a temporary effect.
Presumably for those of us believe that the government is too big.
That's a beneficial effect in the long run for making people be unproductive in the government, going out to be productive in the private sector.
So I think, yeah, initial numbers might decline.
But that's been true throughout Trump's presidency, the second term that government workers are declining.
As opposed to in the Biden years, much of job growth was essentially government growth.
And one can take different views on that.
The former Trump economic advisor, Thomas Philipson.
While we've referred to President Trump's tariff regime and its economic impact, six weeks ago Canada dropped most of its retaliatory tariffs on its southern neighbour, a major U-turn.
It came after 40 of Canadian businesses warned that they might not survive another year if US tariffs stayed in place.
So what has this shift meant for the Canadian economy itself?
Sam Gruay has been speaking to consumers and businesses in Canada's biggest city, Toronto.
In Toronto's morning rush hour, businessman Ian Brown says ending tariffs is the right move.
We depend on trade.
To the extent that we can improve our relations with the Americans.
You've got to do it, because they're big, we're small.
So right decision?
Yeah, it's the right decision, yeah.
It's a difficult decision to make?
Yeah, it makes you feel bad as a Canadian when you're being beaten up.
So do you think Canada's lost the trade war then?
I think it's going to go on for the next three and a half years.
I asked the same question to retiree Jane Roy.
Do you think that Canada has lost this trade war now that it's dropped the tariffs?
Not really.
I think they're going to the table.
I think they're down there right now deciding how this is all going to work, because we have some things that they really need.
One is water, one is oil, and one is electricity.
Some basics in life that we all need, right?
So...
We're not going to give in to this.
And yeah, we're retaliating a little differently.
We don't need them as much as they think they do.
But across Canada's most populated province Ontario, there are signs that the country isn't winning when it comes to the trade war.
38,000 jobs were lost in the second quarter of 2025.
Nearly 30000 of those were in manufacturing, according to a report by the province's financial watchdog.
Nice to meet you.
How are you doing?
Roles that, according to the president and CEO of the Ontario Forest Industries Association, Ian Dunn, are being lost in key Canadian industries.
We have members in our association that have reduced shifts, laid people off.
We have a member, his family has held a license to cut timber in the province of Ontario for 110 years.
And he's had to shut down his sawmill.
He's the last in line to hold that license.
So it's hard to tease apart what precisely the duties and tariffs had on that closure.
It's more the compounding challenges that many, many companies face.
And while Ottawa has dropped many of its counter-tariffs on US goods, Canadian raw wood products like lumber still face a 35 levy.
So our companies, our member companies, have to pay that 35%.
And the hope is that the customer will pay that.
But...
Ultimately, it is the consumer that is going to pay the price of trade barriers.
Consumers aren't the only ones paying.
Businesses are too.
Almost 40 of small firms said they might not have been able to last another year if the current tariff rules had stayed in place, according to a survey from the Canadian Federation of Independent Business.
Some 60% face higher expenses because of the trade disruption.
Very honestly, just chaos is what I would describe that as.
Well, welcome.
At the Toronto Laboratory of Regimen Labs.
Co-founder Alex Apostolopoulos explains how the last few months have been for his skincare brand, which ships to the US.
No one really knows what to do, and the timelines are happening so quickly that, even if they did know what to do, none of the people who are good at this have bandwidth, especially for smaller companies.
In terms of planning and seeing into the future a little bit, it's almost impossible now.
As to whether his country has lost the trade war.
Alex says it's the right time for Canada to back down.
As much as I want to tell the government yeah, you know, like push back.
You know, play a bit of a game of chicken.
What do we have to lose?
I think, you know, the only thing that we can be certain of is our economy here.
Which he says has a lot of room for improvement.
Sam Gruay reporting there from Toronto.
You can hear more from him on the Canadian tariff U-turn in today's edition of Business Daily.
You're with World Business Report from the BBC World Service.
Now for some of the other stories.
Jennifer Snyder is with us.
She's a financial advisor for Brighton Securities in Rochester, New York.
Hi, Jennifer.
Let's talk first about this.
I mean, we're on again, off again.
Arguments with China.
A new threat from Donald Trump over the trade in cooking oil, I think, is the latest one.
Have markets responded to this?
I haven't seen much in the response to the cooking oil.
Obviously this past Friday was quite significant and hearing on the taco trades and things of that nature.
But just listening to your whole segment this evening, the tariffs, I think we're at that tariff fatigue, the IMF stating it's not going to be as severe as it was.
It just seems to be this back and forth.
But what we can do as investors is kind of look at some of these conversations and say hmm, that might be a good time.
Yeah, one thing investors are certainly looking at still, isn't it, is artificial intelligence.
How many stories do we have today?
Google are saying they're investing 15 billion in India over the next five years to set up its biggest AI hub outside of the US, there in the state of Andhra Pradesh.
We've got Goldman Sachs telling employees of potential job cuts because the Wall Street giant closed.
Maybe using artificial intelligence to enhance productivity, it says.
And then we've got Argentina.
We've got this talk there of OpenAI signing a letter of intent to build an AI data centre in the Patagonia region.
It's going off everywhere, isn't it?
Yes, so much on all of that.
I think the biggest thing is essentially that conversation around AI, this idea of the bubble and what it was in the past.
And one of the things to keep in mind is in the 90s there was a euphoric sensation that was going on.
People didn't think we were in a bubble.
And if you don't think you're in a bubble, you're probably in one.
What we have today is a lot of deeper sentiment to question things.
What's going on?
Are we actually in this bubble?
And I think that that's allowing us to kind of learn from the past and be able to make better decisions moving forward.
But an AI, it could definitely be affecting productivity, people, jobs, things of that nature.
But what will it create?
Yes, indeed.
Quick final thought.
Instagram says it's further tightening its content screening for teenagers.
Good news, bad news?
Will it affect the bottom line?
I think it's great.
I have children, so this hits home.
And I think this is exactly what we need to do.
It's not about saying the big scary bear that AI could be, but what could it bring to us and how do we work with it?
Very good.
Thank you very much, Jennifer Snyder.
Now, President Trump, we've been mentioning Argentina.
He has welcomed Argentina's libertarian President, Xavier Millet, to the White House in the last few hours.
This is after, of course, the US has formally, publicly agreed to provide major financial help for the troubled Latin American country.
Mr Milley thanked the US Treasury Secretary, Scott Besant, for announcing earlier this month a 20 billion plan to help calm Argentina's currency crisis.
The endorsement comes ahead of crucial midterm congressional elections in Argentina.
Donald Trump said that victory for Milley's party in those elections would be very important.
US backing was somewhat subject, he said, to whoever might win the elections.
Our approvals are somewhat subject to who wins the election, because if a socialist or, in the case of New York City, a communist wins, you feel a lot differently about making an investment.
I think Scott, you'd feel that if somebody that had no chance, in other words, if somebody wins and has no chance of ever having a great economy because of that philosophy, you would put a halt to what we're doing.
Interesting statements, effectively admitting that this 20 billion currency swap in the US could be an attempt to sway an upcoming midterm election.
That's what some people are saying.
How do people in Argentina themselves, though, feel about the currency crisis?
Here's a message we were sent from someone in the country.
This is Leonora from Buenos Aires.
Over the past months, I'd say.
The sharp drop in the value of the Argentinian peso has once again affected everyday life, though the impact doesn't feel too dramatic.
People here are used to these cycles and know how to adapt very quickly, because prices move constantly in this country.
But while the rate at which they're increasing is not as fast and extreme as in previous years, wages still do struggle to keep up, and that's quite painful to witness.
For many Argentinians, this means constantly adjusting, cutting back on non-essentials and living with a sense of uncertainty that's become almost routine.
And people often spend their pesos very quickly before they lose more value, and saving in local currency does not make sense for most families.
I myself am lucky enough to live in Palermo, one of Buenos Aires' most central and international areas.
And I'd say people here still go out and spend their money.
But even so I have noticed a change, because many restaurants have closed, while others are half empty.
And I think it's because people just cannot afford to go out for lunch or a coffee at what now feel like European prices.
Or at least we think about it twice before spending 5000 pesos on a coffee.
The thoughts of Leonardo, a citizen of crisis-hit Buenos Aires, talking to us about life there.
The French Prime Minister, Sébastien Lecornu, has told Parliament in France that his government will suspend unpopular pension reforms until after 2027.
The government has for years been insisting on raising the pension age in France, but Mr Lecornu has put a halt to that plan in a bid to save the government right now and to force through a new national budget.
A week ago, he even had to resign, only to be reappointed by President Macron.
He's urged lawmakers not to use the budget as a pretext for a no-confidence vote in the French government.
Earlier today, I talked to Emmanuel Grimaud.
He's a pension and economy expert in Paris who's long been arguing for necessary reforms in France.
Given into account the political instability that we have in France and the risks the huge risks that we would have for an assembly dissolution or a new presidential election, you can consider that this is a smart or at least good move to preserve the next two years and to have a budget and some laws that can be voted.
But on the other side, if you look from an economical point of view, this is, I think tragic, because everybody knows, nobody can contest the fact that we had to do something for the pension system in France.
We are the country that goes into pension so young, around 62, while the other countries are around 66 67, even 68.
And in the other countries, nobody is making so much problems about that.
So we know, and the economics doesn't lie, that we have to work longer.
In the last 10, 12 years, we had also a huge collapse in the birth rate.
And we have 20 less babies in that country, which has consequences on universities and obviously on the workforce.
So how can you imagine that with 12 people working For one a pensionee, a retiree things can work?
Obviously, it cannot.
And what is worse, I think, in this tragedy, or theater we can call, is that French people remain in the idea that oh, it's OK.
Why don't we go to pension at the age of 60?
Some of the political parties are announcing that this is totally disconnected from the economic reality.
Right.
I mean, the suspension is going to cost 400 million euros in 2026, according to the prime minister, and 18 billion euros in 2027.
Those don't sound like very large numbers, given the size of the French economy.
Can't they simply make up this shortfall by raising corporation taxes, for example?
That's something they're planning to do, I think.
Well, the thing is, you probably know that we in France have the highest tax rate in the world, either on the individuals or on the companies.
And we have 10 points different than the GNP of taxes and charges.
So we are already very, very, very high.
In the figures of 1.8 million, you have to consider that you only look at the pension issue.
The economy is not going very well now.
And then people stay with the idea that, oh, it's okay.
We can have pension at the age of 60.
We just have to raise taxes.
But it doesn't work like this.
Emmanuel Grimaud, pension and economy expert in Paris.
That's it for today's World Business Report.
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