Rhythmic Reasoning_Highlights_SWM_EN - Flipbook - Page 4
GLOBAL ECONOMIC OVERVIEW
Economic underperformance to continue despite tariff ‘clarity’
Global central banks are increasingly being confronted with the conflicting impact of
the United States’ policies on inflation and growth. The growth impacts are becoming
clear in a broad range of countries, most notably in U.S., Canadian, and Mexican
labour market weakness, but also outside of North America as reflected in depressed
German and French investment trends.
Greater clarity on the ‘final’ levels and coverage of U.S. tariffs has nevertheless
reduced the possibility of deep economic downturns in the U.S. and its main trading
partners, as we had feared in early-April with the ‘Liberation Day’ tariffs
announcement.
Clarity notwithstanding, the U.S.’s large, and sudden tariff hike should continue to
dampen domestic and global growth prospects in the quarters ahead. The review and
possible renegotiation of the U.S.-Mexico-Canada Agreement (USMCA) over the next
few quarters could also quickly reignite heightened trade anxiety, as could the lead-up
to the U.S. November midterms.
Recent economic developments have evidently resulted in U.S. and Canadian central
banks prioritizing labour and economic outcomes over inflationary fears in North
America – a shift from a few months ago when we expected rates to remain stable
through end-2025.
We see this shift in tone more clearly in the U.S, the originator of the trade tensions
roiling the global economy, as recent revisions to job creation numbers and weak
payrolls figures show a fairly weaker consumption backdrop than previously thought.
While Mexico’s economy will continue to be weighed down by U.S. policy and
domestic challenges, Colombia, Chile, and Peru are enjoying steady to solid growth.
However, all three of these countries (and Brazil) hold presidential elections over the
next twelve months that may build up political anxiety that dulls their expansions
prior to and after the vote.
Eurozone growth should remain soft, as Germany’s stimulus roll-out is offset by the
U.S.’s 15% tariff rate and French political risks, while the U.K. should continue to
underperform amid restrictive rates on stubborn inflation – a similar situation to
Japan, with the added drag of tariffs and political instability. Chinese growth should
again tick lower next year, as weak sentiment prevails with limited stimulus headroom.
