Economic growth remains stable, but several risks could topple the ‘sandcastle economy,’ warns Saxo Bank.

As global economic growth remains robust, driven by sectors like artificial intelligence, defense, and obesity drug manufacturing, Saxo Bank warns of several risks to the “sandcastle economy” in its latest quarterly outlook for Q3.

The bank’s outlook identifies threats to economic growth, including unsustainable U.S. fiscal spending, geopolitical risks, and demographic trends that could destabilize the current economic momentum in the longer term.

In his macro note, “Sandcastle Economics,” Peter Garnry, Saxo’s chief investment strategist, emphasizes the precarious nature of current economic growth, stating: “Economic growth will remain stable, but down the road, several factors can destroy our sandcastle economy.”

Garnry highlights the “two-lane economy,” where some sectors are thriving while others are struggling. This disparity complicates monetary policy, as supporting weaker sectors could prolong inflation, increasing economic costs. Meanwhile, inflation remains persistently high, prompting caution from the Fed and delaying rate cuts until policymakers observe a significant economic slowdown.