The fiscal lever returns in an uncertain global order
The ambiguity surrounding US tariffs and their implementation is raising fears among businesses and consumers that could weigh on economic growth over the medium to long term, while having a temporary effect on inflation. Combining this uncertainty with the high valuations in US stocks and the fiscal announcements outside the US, has resulted in the divergence in performances between the US, European and Chinese equities. The changing stance in Europe caused a repricing of yields. Looking ahead, in our view fiscal expansion and trade uncertainty will play out as follows:
- Revival of strategic autonomy in Europe. Trump’s manoeuvres are acting as a wake-up call for Europe. The German fiscal push and the EU defence initiatives could be game changers for the region’s growth, if properly targeted, but they will require time to deliver, and tariff risks also remain. The growth impact of these measures will come after 2025. For now, we are not changing our forecasts.
- No recession in the US, but downside risks on the rise. The effect of tariffs on US growth adds concern, at a time of an already moderating economy. This is also evident from the Fed’s recent downgrade of the growth range for this year. We are monitoring how potentially slower growth could affect corporate earnings – the first half will be crucial.
- Government stimulus in China, while short of an outright economic revival, has managed to sustain the positive sentiment. We upgrade our GDP growth forecasts from 4.1% to 4.4% (2025) and from 3.6% to 3.9% (2026) on the back of a strong fiscal multiplier.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 14 April 2025. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.
Date of first use: 14 April 2025
Doc ID: 4285688