Elevated uncertainty arising from US trade policies
There is considerable uncertainty in the global economy and international markets due to unclear trade policies of the United States, including questions about whether tariffs will be imposed, the criteria for such decisions, the countries affected, their magnitude, and potential political implications. Additionally, the geopolitical effects of ongoing initiatives by the new president, including the conflict in Ukraine and developments in the Middle East, are still not fully understood. Furthermore, verbal confrontations between the United States and its traditional allies, combined with political changes in Germany, France, and Canada, contribute to this uncertainty.
In the US, the 4Q growth rate was 2.3% (quarterly-annualized rate), with an overall growth rate of 2.9% in 2024 (compared to 2.8% in 2023). Inflation has recently experienced a slight increase due to temporary factors, remaining close to the Federal Reserve's target, while labor market conditions continue to be stable. Consequently, the Federal Reserve has indicated that there is no immediate need to adjust its monetary policy, taking into consideration the uncertain impact of trade policy on inflation. The economy continues to expand at a steady rate, primarily driven by private consumption, with leading indicators generally positive. Our baseline scenario for 2025 forecasts continued growth at a rate exceeding 2%, although slightly lower than in 2024.
In the euro area, the economy grew marginally in the fourth quarter on a quarterly basis (0.1%), achieving an overall growth rate of 0.7% for 2024. Inflation remains relatively close to the European Central Bank's 2% target and is expected to converge towards it by the end of the year, while the unemployment rate remains exceptionally low. However, challenges and uncertainties at the economic and political levels have significantly increased. Appropriate strategies are required to address the likely imposition of tariffs by the US on European exports, the direct negotiations between the US and Russia to end the war in Ukraine, the declining competitiveness of European industries compared to the United States and China, and the EU's position regarding new technological developments. Furthermore, these solutions need to be sought in a politically volatile environment with several member states in a difficult fiscal position, further burdened by aging populations. Therefore, the relaxation of monetary policy by the ECB remains essentially the main support mechanism, in a manner that does not reignite inflationary pressures.
In China, economic activity continues to grow at a strong, albeit somewhat more restrained pace, in an environment where inflationary pressures are practically absent. The imposition of 10% tariffs on Chinese exports by the United States and China's very limited response is estimated to leave significant room for negotiation between the two largest economies.