Hello there,
It’s hard to know where to look these days. We’ve got tit-for-tat trade wars and now worries about a U.S. government shutdown.
The bottom line is that growth concerns have shot back onto the top of financial markets’ worry list. We’ve had data showing U.S. consumer confidence and retail sales taking a hit and warnings from the c-suite that the chaotic implementation of U.S. President Donald Trump’s tariffs is hurting Main Street.
Commerce Secretary Howard Lutnick says a recession would be "worth it" to get Trump’s economic policies in place, while Treasury Secretary Scott Bessent has spoken of a coming period of "detox" and Trump himself says the economy is in "transition."
As my colleague Howard Schneider points out, however it plays out, history shows recessions – should it come to that – are costly affairs.
A U.S. recession isn’t the base-case scenario for economists but they have been cutting their forecasts for U.S. GDP growth. Goldman Sachs and Morgan Stanley now see growth at 1.7% and 1.5% this year, respectively. JPMorgan hasn’t revised its forecasts yet but its chief economist, Bruce Kasman, reckons there is about a 40% chance of a recession this year and he sees that potentially rising to 50% or above if reciprocal tariffs that Trump has threatened to impose from April were to meaningfully come in to force.
The barrage of tariff threats and counter-threats and then the actual tariffs themselves are hard to keep a handle on. Lucky for you, my colleague Ben Welsh has created a handy dashboard to keep track of how Trump’s economy is doing. It might be worth bookmarking for the weeks and months ahead.
While markets are focused on growth, inflation is far and away the top concern for Americans. Six in ten respondents to a new Reuters/Ipsos poll said that was the issue they thought Trump should prioritize and nearly 57% of respondents believe he is being too “erratic” in his moves to shake up the economy.
U.S. inflation data out this week had some good news for consumers. Prices rose less than expected in February. But the improvement is likely temporary against the backdrop of aggressive tariffs on imports that are expected to raise the costs of most goods in the months ahead.
China is facing the opposite problem – falling prices. China's consumer price index in February fell at the sharpest pace in 13 months and analysts expect deflationary pressures to drag on. Price wars have become ubiquitous -- from restaurants that push 3-yuan breakfast menus to discount stores that hold multiple, daily flash sales.
The world’s attention has been on the trillions of dollars lost on U.S. stock markets but there has also been huge equity losses in India. A correction there has seen roughly $1 trillion in market capitalization wiped out, threatening to further undermine growth in the world’s fifth-largest economy.
German stocks have been a rare bright spot in the shift away from U.S. markets. Germany’s plans to radically boost spending have been helping drive that shift. But will Chancellor-in-waiting Friedrich Merz be able to push his plans through? German lawmakers are holding a special session today to debate them. Tune in to this week’s Reuters Econ World podcast to hear about the rewards and risks from a German fiscal bazooka. Listen here.
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