- US: Economic outlook is cloudy with negative growth, higher inflation, and uncertainty due to trade tensions and tariffs
- Europe: Rising economic momentum as nations increase public spending and loosen fiscal rules
- Indonesia: Increased economic exposure of exports to China; domestic woes of increased government spending
- Thailand: BOT to adopt monetary easing policies to overcome projected economic slowdown caused by reciprocal tariff threats
US: Cloudy economic outlook ahead. The Atlanta Fed GDPNow model flagged a shallower US economic contraction in 1Q25. GDP growth was projected at -1.8% on 18 Mar vs -2.8% on 3 Mar. Upon closer scrutiny, the negative growth was driven by US companies frontloading imports to get ahead of Trump’s impending tariffs. Projections for consumer spending remained positive at +0.4% despite the pessimism in sentiment surveys. Government spending was higher at +2% despite the Department of Government Efficiency’s cost-cutting measures.
At last week’s Federal Open Market Committee meeting, the Fed separated the signal from the noise in the Summary of Economic Projections and anticipated that increased trade tensions would moderate GDP growth to 1.7% from 2.1%, on top of lifting core PCE inflation modestly to 2.7% from 2.5% in 4Q25. On 28 Mar, consensus sees core PCE inflation rising to 2.7% y/y in February from 2.6% in January. The Fed maintained its projection for two rate cuts this year, rejecting the market pricing for three. This week’s Fed speakers will likely keep to the narrative that tariffs would lead to transitory inflation unless longer-term inflation expectations become unhinged. Central bankers should continue the heightened uncertainty narrative ahead of Trump’s reciprocal tariffs on 2 Apr which aim to align US tariffs with those imposed by other countries and focus on nations with significant trade imbalances with the US.
Uncertainties over the unannounced tariffs in April should lead to more defensive positioning. The tariffs that have been announced thus far have been haphazard and the market has been reacting frequently to the news flow. However, we suspect that a more systematic rollout of US trade policy may be in the offing. First, there is a decent chance tariffs would be more orderly. Second, it is unclear if the market has fully digested the point that tariffs are likely to stay.
Market participants have been fading US exceptionalism for a few weeks. An additional layer of complication comes when the outlook gets clouded by stagflation hues. The revisions in the SEP forecasts (higher inflation and slower growth) are probably only a partial reflection of what would happen if trade war escalates in the coming months. Even as Fed Chair Powell indicates that tariff-induced inflation should be transitory, the market may not be easily swayed.
The US Conference Board’s consumer confidence index has tumbled a fourth consecutive month to 92.9 in March; its worst reading since Jan 2021. The Expectations Index has dropped to 65.2, the lowest level in 12 years, well below the 80 threshold that usually signals a US recession ahead. US consumers have been increasingly worried about economic and policy uncertainty under the Trump administration (especially inflation) and the impact of trade policies and tariffs. For the first time since late 2023, more consumers expect the US stock market to decline vs those who look for the rise.
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