Summary

  • While time and effort can be spent diving into the fundamentals that underpin the global economy and what they could imply for the outlook and markets, the last three months have emphasized that these factors are playing a lesser role in setting expectations than they traditionally do.
  • Instead, what is likely to come next for consumers, businesses, investors, and policymakers hinges on the volatile and generally unpredictable developments concerning US economic policy.
  • The new US Administration’s aggressive turn against perceived adversaries and (former) allies alike has roiled long-standing norms, with the persistent threat of substantial tariffs representing another potential pandemic-like shock to globally integrated supply chains that could bring cascading repercussions. Further complicating matters is the fairly haphazard way in which the changes in trade policy are being rationalized and put into force.
  • The uncertainty about what policies may be in place even a week from now, let alone over the next month or four years, makes it incredibly difficult for consumers, businesses and investors to make spending and investment decisions — not to mention the impact it has on forecasters — and creates a further headwind for the outlook.
  • While uncertainty and volatility are likely to remain the key watchwords for the foreseeable future, and risks to the downside remain elevated, there remains the scope for momentum to continue on a positive trajectory.
  • Further, while ample caution is warranted, it may well be the case that new opportunities arise in response to US policy developments, such as those stemming from the renewed era of government investment in Europe, while Canada and others could benefit from broadening their trade relationships — which could provide a fundamental support to markets that have undergone something of a valuation adjustment.