MACROscope

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 (...)

Events in the global economy and geopolitics have definitely accelerated. Since the outcome of the US presidential election last November, we have been pointing out that the effects of this change on the global economy are difficult to predict and far from obvious. The actions of the new US administration in recent weeks have triggered a sequence of events that has caused a fundamental revision of the economic scenarios priced in by financial markets. Three themes of key importance for the economic and market outlook are playing out in parallel: 1) the turn towards greater protectionism in international trade, 2) the loosening of fiscal rules in Europe, and 3) the efforts to suspend/end hostilities in Ukraine. Each of these has different possible consequences for the future economic growth, inflationary trends and monetary policy outlook - we try to map the main effects in the table on page 7.