In anticipation of the Trump administration and its policies
The developments in both the US and global economies are marked by significant uncertainty, largely influenced by the policies of incoming US President Donald Trump. This uncertainty arises by three primary factors: the nature of President Trump's political and economic initiatives, the timing of these decisions, and the intensity and extent of their implementation. Additionally, geopolitical issues, such as the conflict in Ukraine, events in the Middle East, and the new administration's stance towards both traditional and non-traditional allies, will shape the emerging global landscape. Furthermore, political instability in Germany, France, and Canada adds to this considerable uncertainty.
The US economy continues to exhibit robust growth, with leading indicators remaining generally favorable. Inflation, despite a recent slight increase, remains near the Federal Reserve's 2% target, which facilitated a third consecutive reduction of the key interest rate during the December meeting. Looking ahead, the Fed is inclined towards more gradual reductions in the key interest rate, driven by ongoing data developments, while also considering the inflationary impacts of newly imposed tariffs on imports. Labor market conditions continue to be excellent, with significant improvements observed over the past two months. Concurrently, retail sales and personal consumption expenditures, supported by rising wages and low unemployment rates, maintain a positive monthly trend. Our baseline scenario anticipates a mild slowdown in economic growth in the forthcoming period.
In the euro area, economic growth remains moderate. Political changes have led to an inadequate response to challenges at both national and Eurozone levels, with the risk of deindustrialisation becoming more apparent. The fiscal position of many member countries is difficult, further impacted by ageing populations, making it challenging to support the economy through increased government spending. As a result, monetary policy easing remains the primary support mechanism, aiming to avoid reigniting inflationary pressures. The situation is further complicated by potential increases in tariffs on European products from the US, higher energy costs, and possible reduced US support for Ukraine, which could affect Europe's stance. However, the labour market remains strong.
Recent measures implemented in China to support the economy and address issues in the real estate market appear to have prevented a notable slowdown in growth (2024: 5%). However, the introduction of additional U.S. tariffs and bans on Chinese exports and imports will likely result in new economic support measures, primarily through fiscal stimulus aimed at boosting domestic consumption.