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Global Economic Outlook Clouded by Trade Tensions, Says Economist
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By Anya Sharma | WASHINGTON – 2025/06/19 13:15:34
WASHINGTON – Escalating trade tensions and policy missteps are casting a shadow over the global economic recovery, according to economist Raphaël Gallardo. In a recent analysis, Gallardo highlighted the potential for reduced global growth and outlined strategies for investors navigating these uncertain times.
Gallardo points to the impact of rising American customs duties, estimating that a sustained 15% increase could reduce global growth to 2.4% over the next year. He suggests that declining confidence among households and business leaders in the United States signals a slowdown in private domestic demand, with the labor market expected to reflect this shift by the third quarter of 2025.
“Unlike periods of previous slowdowns, this vacuum passage cannot be amortized by a proactive Fed or by a softening of long -term borrowing conditions,” Gallardo stated.
He anticipates that the persistence of inflation and perceived threats to the independence of the federal Reserve (Fed) will lead its president, Jérôme Powell, to maintain a reactive stance. Furthermore, Gallardo suggests that the long end of the rate curve will remain under pressure due to an increase in the term bonus, as bond investors react to fiscal policies.
Gallardo also notes that the current situation could provide budgetary maneuverability for many countries, excluding China, allowing them to strengthen their strategic autonomy and reduce exposure to the United States. He anticipates that the erosion of the U.S. dollar as a global reserve currency could lead to increased demand for raw materials as reserve assets and accelerate the adoption of cryptocurrencies.
Investment Strategies for uncertain Times
Despite these concerns, Gallardo sees opportunities for active managers who are willing to look beyond the challenges and identify attractive investments. He advises caution regarding sovereign obligations due to increasing deficits, finding long rates unattractive due to the rising term bonus. He favors real rates over nominal rates and emphasizes the importance of rigorous selection to identify instruments offering yields that outpace inflation.
“unlike periods of previous slowdowns,this vacuum passage cannot be amortized by a proactive Fed or by a softening of long -term borrowing conditions.”
In foreign exchange markets,Gallardo recommends a “barbell” strategy,leveraging both defensive currencies like the euro and yen,and cyclical currencies,particularly in Latin America. He also finds the technology sector attractive in equity markets, while stressing the importance of valuations. He highlights European and emerging markets as undervalued, under-owned, and underestimated, presenting fertile ground for stock selection.
China’s Economic Model
Gallardo observes that China has not shown a desire to shift from its export-focused economic model, indicating that new recovery measures are necessary. He also notes that the European recovery is facing delays, emphasizing the critical role of the job market in its progress.
Frequently Asked Questions
What is a trade war and how does it impact the global economy?
A trade war involves countries imposing tariffs or other barriers on each other’s trade. This can disrupt supply chains, increase costs for businesses and consumers, and reduce overall economic growth.
How does monetary policy affect inflation?
Monetary policy, managed by central banks, involves adjusting interest rates and controlling the money supply. raising interest rates can definitely help to reduce inflation by making borrowing more expensive and reducing spending.
What is the importance of sovereign debt levels?
High levels of sovereign debt can make a country more vulnerable to economic shocks and may lead to higher borrowing costs. It can also limit a government’s ability to respond to economic downturns.
