MACROscope

The reciprocal tariffs imposed by the US on most countries remain suspended until early July, and it has just been agreed between the US and China that higher tariff rates are to be suspended until August. This creates a window of time in which business should still go quite well, even though companies will likely still worry about their prospects. It may even be possible to count on an increase in orders and a build-up of inventories ahead of the possible entry into force of significantly higher tariffs (...) The MPC's May decision to cut rates by 50bp was described as an adjustment of the rate level rather than a start of regular monetary easing. The Council is still divided as to whether the resumption of rate cuts should take place in July or September, i.e. whether a favourable projection is enough for this or whether it is first necessary to see inflation’s decline below 3.5% y/y in actual data. In our view, rates will go down twice more this year (...)

Donald Trump's announcement in early April of a new package of tariffs, dubbed “reciprocal”, effectively meaning an increase in US trade protectionism to the highest level in more than a century, generated additional uncertainty about the economic outlook. The destabilisation in financial markets that followed in response to these developments reflected increased concerns about a global economy slowdown and the risk of a US recession, but also the difficulty in assessing further possible scenarios. The latest US decision to suspend reciprocal tariffs for 90 days for all but China has brought a market recovery, but has not removed uncertainty. On the contrary, it is a confirmation that conditions for business and trade can change dramatically at any time. The US administration is suggesting room for negotiation, but it is unclear whether it will even be possible to restore tariffs lower than the 10% referred to as the base tariff (...)