| I’m Malcolm Scott, international economics enterprise editor in Sydney. Today, Katia Dmitrieva and I look at how Trump’s election victory is making life tough for the world’s economic forecasters. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X via @economics. And if you aren’t yet signed up to receive this newsletter, you can do so here. - The search for Donald Trump’s chief economic policymaker devolved into disarray over the weekend, with contenders tussling for support.
- Xi Jinping used his final meeting with Joe Biden to send a clear message to Donald Trump: China wants to be friends, but is ready for a fight if necessary.
- Federal Reserve Chair Jerome Powell said last week that housing inflation “has yet to fully normalize.” He could be waiting a while for that.
Anyone who has studied economics at any level will be familiar with the Latin phrase “ceteris paribus” — all other things being equal. It’s the qualifier attached to just about every formula and proposition used in the dismal science. Problem is, with Donald Trump’s sweep of the Nov. 5 presidential election and his appointees set to upend almost all aspects of US policy, all other things are about to be far from equal. Economists — who rely on precedents to develop the formulas that underpin their forecasts — are scrambling to make sense of the coming chaos. For some, that means developing new models to assess the impact of tariffs. For others, it means midnight calls with worried clients and endless monitoring of social media to stay on top of developments. Rob Subbaraman, head of global markets research at Nomura in Singapore, has downloaded Truth Social, the President-elect’s conservative social media platform. “Models rely on stable relationships and assumptions, but right now we don’t really know what the assumptions are and the relationships might not be stable,” said Subbaraman, who hosted a call with 250 global clients until midnight US time on election night. In econo-speak, Trump injects a lot of “structural breaks” and “non-linearity” into forecasting. Amid the uncertainty, some are turning to scenario analysis: instead of using formulas and inputs to derive a single forecast, a range of possibilities is presented, often with probabilities attached. UBS analysts spent five months developing a global tariff model that includes variables like import substitution, exchange rates and how much companies are likely to absorb in their profit margins. Chief economist Arend Kapteyn and team laid out more than a dozen potential scenarios, which included global growth easing to 2% if Trump adds tariffs as promised instead of the baseline 2.9% estimate for 2026. Scenarios are all very well for government officials or business leaders who have time to formulate their response to events. But for market participants buying and selling securities in anticipation of events, often a more pointed and singular view is needed. “This is the period of most uncertainty, but we need to take a stance in our book,” says Monica Hsiao, chief investment officer and founder of Hong Kong-based Triada Capital. “Trump is someone you can’t always analyze,” she added. “He’s mercurial.” - Bank of Japan Governor Kazuo Ueda avoided giving a clear hint that he will raise rates at a December meeting during comments that weakened the yen.
- High levels of sovereign debt could prevent governments from addressing long-term economic challenges, the European Central Bank’s vice president said.
- With economists reckoning Germany can’t avoid a second year of shrinking output, the Bundesbank chief warned of the risk of further global economic fragmentation.
- Mexican President Claudia Sheinbaum is giving signs that she’ll come down on the side of the US over China, if she’s forced to choose.
- Goldman Sachs lowered its forecast for Australia’s economic growth in 2025, pointing to likely “negative spillovers” from Trump’s expected tariffs on China.
- France’s budget is advancing through fractious parliamentary debates toward a precipice in December when far-right leader Marine Le Pen could trigger chaos.
UK inflation probably surged back above the Bank of England’s target in October, reinforcing the case for policymakers to act cautiously when cutting interest rates. The consumer price index due on Wednesday rose an annual 2.2%, according to the median of 24 forecasts in a Bloomberg survey. That’s up from 1.7% last month, when it slipped below the BOE’s 2% target for the first time in more than three years. See here for the rest of the week’s economic events. This year, Fed policymakers, for the first time since they began making quarterly projections for their benchmark rate, raised their estimate for the longer-run — or “neutral" — setting three straight times. Goldman Sachs economists expect them to keep nudging it up. “We expect the FOMC’s estimate to rise somewhat further next year,” Manuel Abecasis and David Mericle wrote in a note last week. They cite a couple of reasons. First, financial markets have priced in a notably higher rate for coming years, and that’s something that might influence officials. The duo also used models assembled by Fed staff in the past, and plugged in updated numbers. The estimates average out to 3.8% — almost a percentage point above the latest median from Fed policymakers, who are due to update their estimates next month. Goldman also sees the Fed halting rate cuts above neutral, at around 3.25% to 3.5%, given “tailwinds” to the economy from the fiscal deficit and robust financial markets. | 
