Tariffs uncertainty – need to do a deal
Unfortunately, investors hoping for a quick resolution to tariff discussions so that markets and businesses can ultimately gain some level of certainty isn’t likely to be forthcoming any time soon. U.S. President Donald Trump announced sweeping reciprocal tariffs on 2nd April, with significantly higher tariffs on some countries (e.g. China). He later announced a 90-day pause on tariffs, opting to maintain just the 10% tariff rate for the interim (excluding China). Over the past few weeks China and the U.S. have gone tit-for-tat on tariffs. But it appears warnings from business leaders and from financial markets volatility (especially in the bond market – which led to President Trump announcing the 90-day pause) may be having some effect on President Trump. In recent days he appears to have eased his attack on China stating he would be willing to substantially pare back his 145% tariffs on China – “we’re going to have a fair deal with China”. U.S. Treasury Secretary Scott Bessent recently remarked at a closed-door function in Washington that the tariff standoff with China is unsustainable and that he expects the situation to de-escalate.
Impact on business sentiment
While March indicators were generally ok, forward-looking indicators suggest the uncertainty created since the announcement of tariffs at the start of April is having an impact on business sentiment. The Global Composite PMI, which reflects economic activity across manufacturing and services, was relatively stable in March ahead of the tariff announcements. However, the Sentix expectations index, which captures forward-looking sentiment and was conducted after the tariff shock, has plunged sharply. See chart in Figure 1. This suggests that global business and investor confidence deteriorated significantly in early April, with survey respondents anticipating a marked slowdown in activity. The scale of the Sentix decline implies that the April PMI reading is likely to fall below the 50 level, signalling a contraction in global economic activity.
Economic growth expectations lowered
The global trade uncertainty driven by U.S. tariff policy is driving economists to lower their growth expectations. The International Monetary Fund (IMF) only recently reduced their 2025 global growth estimate to 2.8% from 3.3% in January. The IMF lowered their forecasts for most countries including the U.S. and China, citing tariffs and escalating trade tensions. Similarly, a survey by Blue Chip Economic Indicators also showed across the board downward to GDP growth forecasts for 2025 made in recent months. Worth highlighting that along with the U.S., the largest downward revisions have been for export-driven economies such as South Korea, Canada, and Germany.
Upward revisions to inflation. Alarmingly, whilst growth forecasts are being lowered, inflation forecasts are being revised up for 2025 across major economies. Hence, raising concerns of stagflation.
