Companies are putting investment and hiring plans on hold on the corporate front, softening the US growth outlook. A potential increase in unemployment would negatively impact US consumption. Given the fragile fiscal situation, US monetary and fiscal policy has limited options to respond to economic weakness, as US public debt and deficit levels are exceptionally high. On the back of the potential inflationary impact of tariffs, we forecast two substantial rate cuts of 50 basis points each in the second half of 2025.
A series of diplomatic milestones has marked recent weeks: the US and China advancing a trade agreement, a temporary truce between India and Pakistan, and the UK securing a deal with the US. Meanwhile, developments in Ukraine and the Middle East show tentative signs of progress. Amid this shifting landscape, the evolving US-China relationship remains the most critical. This piece analyses what it means for the two economic superpowers — and global investors.
US tariffs cause pain at home and stimulus abroad
The US has implemented a near-universal 10% tariff, along with product-specific measures and reciprocal tariffs from partners. Although some were initially paused after financial shocks, the damage has already materialised. We estimate a 50% probability of a US recession primarily caused by an exogenous policy shock. However, without major domestic imbalances, any economic downturn should neither be long-lasting nor self-perpetuating.
