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The Week Ahead - 31 March - 4 April 2025
These are the Key Macro Events for the upcoming week.
US - The reports of a contraction are somewhat exaggerated
Import frontloading depresses 2025Q1 GDP nowcasts, while private domestic demand remains solid. This increases the probability of a technical recession, especially if further tariffs arrive later in Q2. Recession probabilities marginally elevated with current policy, with upside risks if tariffs are increased.
Global Monthly - This is getting complicated
The outlook is getting muddied by rising US recession risk on the one hand, and eurozone defence spending on the other. In the near-term, growth is being distorted by trade frontloading. This is leading to a partial unwind of the Fed-ECB policy divergence narrative that was driving markets. Despite the massive policy shifts of the past month, we are keeping our forecasts unchanged for now, and plan to do a full review after the US’s so-called ‘Liberation Day’ tariff announcement on 2 April. Spotlights: 1) Are tariffs really the end game? We explore the feasibility of a ‘Mar-a-Lago Accord’; 2) Will defence spending revitalise eurozone growth? We think it could, but from 2026 onwards.
Key views Global Monthly 26 March 2025
US tariff threats have surprised even our pessimistic expectations, with the most important announcement still to come on 2 April. China, the EU and the US’s neighbours are expected to bear the brunt. For the eurozone, a new upside risk comes from likely significant increases in defence spending, and in Germany new infrastructure spending. This will blunt the impact of tariff rises. Global trade and growth are also initially benefiting from a frontloading ahead of tariff rises, but a sharp slowdown is expected later in 2025. Domestic demand is in the meantime recovering in the eurozone and China, helped by falling interest rates, and in China, targeted fiscal measures. Inflation in the US is expected to reaccelerate, but to fall below target in the eurozone. This is likely to drive a divergence in Fed & ECB policy, with Fed policy staying on hold from here, and the ECB continuing to cut rates.
US Watch - Tariffs are not the endgame
There is increasing noise on a ‘Mar-a-Lago accord,’ an idea outlined in a paper by CEA Chair, Stephan Miran. The accord is part of a grand plan to devalue the dollar, similar to the 1985 ‘Plaza Accord,’ that is envisioned to increase US manufacturing competitiveness, and revitalize the economy.
The Week Ahead - 24 - 28 March 2025
These are the Key Macro Events for the upcoming week.
Fed Watch - Powell: 'Maybe I'll stay where I am'
The FOMC held rates in the 4.25-4.5% range and announced it will slow the pace of runoff of its securities holdings in April, by reducing the cap on Treasury redemption from $25 to $5 billion, while keeping the cap for MBS at $35 billion.
FOMC Preview - Hedging against Trump
We expect the Fed to stay on hold this Wednesday, and to push back against more aggressive easing priced by markets. Recent inflation data, upside inflation risks, and the risk of de-anchoring expectations limit the scope for easing. Holding rates steady now decreases the probability of having to raise rates in the near term, avoiding the ire of the Trump administration.
China - Good start to 2025, consumption support forthcoming
China Macro: Activity data for January/February surprise to the upside, although property sector data remain weak and the unemployment rate picks up. More consumption support is underway.
The Week Ahead - 17 - 21 March 2025
These are the Key Macro Events for the upcoming week.