In February, this year, investors became increasingly worried about the growth trajectory of the U.S. economy. The market recently increased its probability of a recession in the U.S which has driven a notable correction in the U.S. equity markets in February & March. We note that the U.S. market makes up more than 70% of MSCI World ex-Australia Index therefore it has material implications for global equities performance. Further, given the importance of the U.S. economy as a global trading partner, a recession in the U.S. will have a material impact on the outlook for global growth.
Markets hate uncertainty. U.S President Donald Trump’s tariff policy targeting countries such as Canada, Mexico, China and Australia is creating significant uncertainty in global markets with new executive orders signed by the U.S. President on a weekly basis. Adding to investor concern is that most of these countries will introduce retaliatory measures in response, hence potentially leading to an all-out trade war. The Bloomberg global trade policy uncertainty index has seen a parabolic increase in recent months.
China sets an annual real GDP growth target of 5.0% for 2025. Despite China being the target of the U.S. President Trump’s tariffs, at the recent National People’s Congress China revealed the growth target of approx. 5.0% for 2025. On a positive note, China’s policymakers have shown interest in lifting the budget deficit target from 3% to 4% to support the economy. With a renewed focus on supporting the private sector and its domestic technology companies (which in the past have been targeted by policymakers), we see positive momentum for Chinese shares in 2025.
On the domestic front, positive update on the Australian consumer. The latest Westpac-Melbourne Institute Consumer Index posted a solid gain in March 2025, rising by 4% to 95.9. Driving this positive gain is moderating inflation in Australia and the recent RBA rate cut. Other notable points from the latest survey: Sentiment towards major purchases showing a promising improvement; Consumers’ own finances stabilising and further improvement expected.
Improving consumer confidence is important for household consumption, which is a key contributor to Australian GDP growth. The Australian economy grew by +1.3% year-on-year during the December 2024 quarter, marking the strongest quarterly increase since 2022. Government spending was the core driver of growth, however, household consumption also improved.
