Haver Analytics
Haver Analytics

Introducing

Andrew Cates

Andy Cates joined Haver Analytics as a Senior Economist in 2020. Andy has more than 25 years of experience forecasting the global economic outlook and in assessing the implications for policy settings and financial markets. He has held various senior positions in London in a number of Investment Banks including as Head of Developed Markets Economics at Nomura and as Chief Eurozone Economist at RBS. These followed a spell of 21 years as Senior International Economist at UBS, 5 of which were spent in Singapore. Prior to his time in financial services Andy was a UK economist at HM Treasury in London holding positions in the domestic forecasting and macroeconomic modelling units.   He has a BA in Economics from the University of York and an MSc in Economics and Econometrics from the University of Southampton.

Publications by Andrew Cates

  • The Trump administration’s sweeping new tariffs, announced on April 2nd, may be pitched as a tool to restore US industrial greatness—but the global economy has moved on. Despite the political appeal of reshoring manufacturing and punishing trade partners, tariffs are a blunt instrument trying to shape a world that no longer exists.

    Let’s start with the basics: the structure of global demand and production has changed. In the 1980s and 1990s, global trade was dominated by container ships full of cars, clothing, and household goods. Today, much of the economic value generated by advanced economies is invisible, weightless, and digital. A book bought on an iPhone doesn’t pass through customs. A call between colleagues in New York and Singapore doesn’t register on a trade ledger. The software used to design a prototype in Boston may be sent instantly to a 3D printer in Stuttgart—and no goods are “imported” in the traditional sense.

    Tariffs don’t touch any of that. They are analog policy tools in a digital world.

    Meanwhile, consumer preferences have shifted—especially in aging economies like the US, Europe, and Japan. Older populations demand more healthcare, more convenience, and more services. They are less interested in accumulating physical goods and more inclined to consume time-saving solutions: app-based services, digital content, personalised experiences. These are not products that are made in factories—they are composed of intellectual property, design, code, and networks.

    In this landscape, intangibles rule. The most valuable US exports aren’t cars or machinery—they’re ideas, algorithms, entertainment, and software. The US remains the global leader in high-value services—finance, cloud computing, enterprise software, biotech R&D, education, and media. These exports are often delivered without crossing a border, and they generate high margins without requiring massive industrial footprints. The global demand for American creativity, standards, and know-how has only grown.

  • For some further views on the impact on the world economy of recent US tariff policies please see Liberating the Downside on our Viewpoints section.

    The return of protectionist trade policies under the new US administration had already added a significant layer of uncertainty to an already fragile global landscape. And this has now been dramatically amplified following the decision by the US administration to announce a sweeping package of tariffs on a broad range of imports from key trading partners—including the EU, China, and several emerging markets. These measures were more expansive in both scope and scale than markets had anticipated, and they carry the potential for significant global economic disruption—particularly if targeted trading partners respond with retaliatory countermeasures, escalating the risk of a full-scale trade conflict.

    The announcement has sent a fresh wave of volatility through financial markets. Equities in export-dependent economies have sold off sharply, while European capital goods manufacturers and global logistics firms saw their valuations marked down in anticipation of disrupted supply chains and rising input costs. Treasury yields have also declined on expectations of weaker investment and slower growth, while emerging market currencies came under pressure amid renewed concerns over capital outflows and global trade fragmentation.

    The impact on business sentiment and investment planning could be immediate. Firms with international exposure are likely reassessing capex plans and supply chain configurations, while some have accelerated domestic sourcing strategies in anticipation of longer-term decoupling. Early survey data suggest that capital expenditure intentions, particularly in globally integrated sectors, are already weakening—a signal that could weigh heavily on productivity and future potential output.

    Against this backdrop, central banks face a challenging policy recalibration. While disappointing US growth data had already tilted expectations toward monetary easing, the scale of trade disruption now adds an additional layer of urgency (charts 1 and 2). Economic forecasters broadly anticipate that most major central banks will lean further into rate cuts in the coming months to offset downside risks (chart 3). That view has gained further traction in Europe, where softer inflation prints (chart 4) have reinforced expectations of imminent ECB action. Meanwhile, more activist fiscal policies in Europe and China (chart 5) provide some offset to the gloom, though these too now face bigger headwinds in an increasingly fragmented trade landscape.

    Ultimately, the burden of adjustment is now falling most heavily on trade-dependent economies (chart 6). With the global system inching closer to bifurcation, the downside risks to growth, investment, and policy coordination are rising sharply. The next few months will test not only the resilience of the global economy but also the credibility of the policy frameworks designed to support it.

  • USA
    | Apr 03 2025

    Liberating the Downside

    In a piece in Haver’s Viewpoints section earlier this week (Strategic Uncertainty and Market Pricing: A Game Theoretic Perspective on Recent US Policy Shifts) it was argued that markets are struggling to price a highly uncertain and rapidly evolving strategic environment, marked by the Trump administration’s shift from cooperative to non-cooperative global games—most notably via aggressive trade threats that represent a sudden break from past policy norms. While asset prices had been reflecting reduced US growth expectations, higher inflation risk, and a modestly higher cost of capital, the wide range of possible outcomes—amplified by geopolitical unpredictability—meant the path to a new global equilibrium was likely to be volatile and disruptive.

    And this view has now been dramatically amplified following the decision by the US administration on April 2nd to announce a sweeping package of tariffs on a broad range of imports from key trading partners—including the EU, China, and several emerging markets. These measures were more expansive in both scope and scale than markets had anticipated, and they carry the potential for significant global economic disruption—particularly if targeted trading partners respond with retaliatory countermeasures, escalating the risk of a full-scale trade conflict.

    How exactly this will reshape the world economy is still anyone’s guess. Will global supply chains fracture completely or merely bend? Will retaliatory tariffs hit US tech, agri-exports, or defence deals? Will capital flows seize up or simply redirect? Will monetary authorities act quickly enough to stabilize expectations?

    But aside from game theory—which provides insight into the strategic logic of defection and retaliation—another useful framework for assessing the macroeconomic consequences of this shock is that of financial balances.

    Financial Balances: An Accounting Identity with Predictive Power

    Recall the national income identity in financial balances form: (Private Sector Balance) + (Government Balance) + (Foreign Sector Balance) = 0

    That is: (S – I) + (T – G) + (X – M) = 0

    Where: • (S – I) = private savings minus investment • (T – G) = government surplus (or deficit if negative) • (X – M) = net exports (i.e., current account balance)

    If one of these balances shifts—say, a current account improvement via import compression—then either the private sector must reduce its surplus (invest more or save less) or the government must run a bigger deficit. The system must rebalance, always.

    1. US Impact: From External Adjustment to Domestic Strain

    The intention behind the tariffs is clear: compress imports, reduce the trade deficit, and ideally, bring back some production capacity to the US mainland. But as we've seen in past episodes, protectionism rarely leads to clean outcomes.

    • If imports fall due to tariffs, and exports are simultaneously hit by retaliation, the net trade balance might not improve meaningfully. • That means the foreign sector balance (X – M) doesn't deliver the adjustment hoped for. So where does the pressure go?

    It goes to the private and public sectors.

    Private sector balance (S – I) is likely to rise. Firms face greater uncertainty and may reduce capital spending, while households—facing higher prices on imported goods—could cut consumption. Net private saving rises. • This leaves the government to absorb the shock. With private retrenchment and a stagnant or worsening current account, the only way the identity can hold is via a widening fiscal deficit.

    In effect, the tariffs may create an illusion of national self-reliance, but the reality is a fiscal offset to a trade-induced demand squeeze. Unless the US is willing to tolerate a deeper recession, fiscal stimulus becomes the balancing item.

    2. Global Impact: Shock to Trade-Exposed Economies

    Now consider the rest of the world—especially the major US trading partners. The tariffs strike at trade-dependent, export-surplus economies such as Germany, South Korea, and China. These countries have historically run external surpluses, allowing their private and government sectors to remain in surplus or near balance.

    • If their exports to the US fall, their foreign sector balance deteriorates. • If they don't immediately offset that with stronger domestic demand (via fiscal or private sector action), then either their private sector must dis-save (less likely), or their governments must run larger fiscal deficits to compensate.

    For surplus economies like Germany or China, this moment could trigger a major shift toward domestic demand rebalancing, but the scale and speed required are politically and economically challenging.

    For emerging markets, the picture is more fragile. Weaker export revenues + capital outflows → tighter financial conditions → risk of pro-cyclical fiscal tightening, which worsens the downturn. Hence, EMs may become the shock absorbers of this global shift, through both growth and FX channels.

    3. Inflation, Policy Recalibration, and Financial Markets

    Tariffs act like a tax on imports. In the short term, that means higher prices, especially in sectors like electronics, consumer goods, and industrial inputs. If retaliation is met with further escalation, costs rise further.

    At the same time, the private sector is pulling back—demand is softening, and investment is slowing. The result is a stagflationary impulse: higher inflation, but weaker growth.

    • The Fed faces a credibility trap. Inflation is sticky, but growth is slowing. Cut too early and you risk fuelling inflation; cut too late and the downturn deepens. • The ECB and other central banks have a clearer path—softer inflation gives them cover to ease—but deteriorating global trade may limit the power of domestic stimulus.

    Meanwhile, financial markets are struggling to find footing:

    • Equities in global cyclicals, capex-heavy sectors, and exporters are weakening. • Bond markets are now arguably pricing a lower global neutral rate, with flattening curves and increased volatility. • FX markets are unsettled: EM currencies weaken, the USD fluctuates, and policy divergence risks new capital flow imbalances.

    4. Strategic Rebalancing: A Slow-Motion Adjustment

    The financial balances framework doesn’t tell us where policy should go—but it tells us where it must go if macroeconomic stability is to be preserved. If the external sector can’t deliver the adjustment, either the private sector must invest more (unlikely amid uncertainty), or the public sector must step in.

    In the US, that likely means:

    • A bigger deficit, at least in the near term; • A higher risk of longer-term fiscal sustainability debates; • And growing pressure for industrial policy, subsidies, and tax incentives to replace what trade used to deliver.

    Globally, we are likely to see:

    Asynchronous policy cycles, with China and Europe stimulating more aggressively; • Ongoing FX pressure and fragmented capital flows; • And a world inching toward multi-polar demand models, where economies rely less on the US consumer and more on domestic engines of growth.

    Conclusion: When Tariffs Shift the System

    The new tariffs are not a policy tweak—they are a shock to the system. Through the lens of financial balances, we can already see how the global economy will be forced to rebalance: not by choice, but by accounting necessity.

    In the short term, this means slower growth, higher uncertainty, and deeper fiscal footprints. In the long term, it may mean a less integrated world economy—with all the frictions and inefficiencies that implies.

    The challenge now is not just to understand the game, but to read the scoreboard.

  • Recent company earnings calls and sell-side analyst reports suggest heightened uncertainty and an unusual degree of hesitation among market participants regarding the future macroeconomic and geopolitical environment. In contrast, financial markets—as embodied by aggregate asset prices—must continuously express a view, even in the face of profound ambiguity.

    Currently, the market appears to have revised its expectations in three key ways. First, growth expectations have declined markedly: our cross-asset growth factor implies that US GDP growth priced into markets recently fell from above 2% to effectively zero. We note in pasting that the Atlanta Fed’s latest Nowcast for GDP growth in Q1 is still negative. Second, inflation expectations have nudged higher. Third, there has been a modest upward revision in the expected cost of capital.

  • Financial markets remain gripped by heightened uncertainty surrounding US trade policy, slowing US growth, and broader fears of global economic instability. Latest data suggest that the recent introduction of US tariffs has driven up manufacturing input prices and risks exacerbating supply chain frictions (charts 1 and 2). Looking ahead, investors are also increasingly assessing the implications of reduced global cooperation for US capital markets and the value of the dollar (chart 3). Still, notwithstanding recent concerns, there remain big question marks about the degree to which other major economies, including Europe and China, will act as a magnet for global capital in the period ahead. Energy costs, for example, remain a critical ingredient for economic competitiveness, and while the US continues to benefit from low electricity prices, Europe’s high energy costs are still acting as a drag on its growth prospects (charts 4 and 5). As for China, tentative signs of stabilization have emerged following recent fiscal loosening and targeted stimulus measures, which have helped buoy industrial output and credit growth. The government’s latest initiatives—centred on infrastructure investment, tax incentives, and efforts to support the property sector—have raised hopes of a turnaround, though structural headwinds, including weak consumer confidence and ongoing financial strains in the real estate sector, remain formidable. Whether China can sustain a more durable recovery will be a key factor shaping global capital flows, particularly as investors weigh the relative attractiveness of US and Chinese assets in an increasingly fragmented global economy (chart 6).

  • US equity markets have underperformed relative to global peers in recent weeks, as investor sentiment has deteriorated in response to weaker-than-expected growth data and growing concerns about the Trump administration’s economic policies (chart 1). The administration’s renewed push for tariffs, alongside fiscal expansion and tighter immigration policies, has fuelled stagflation fears, compounding the uncertainty surrounding the Fed’s next steps. This week, the Fed opted to keep its policy rate on hold but acknowledged rising downside risks by revising its GDP growth forecast lower, signalling caution about the economic outlook despite lingering inflation concerns. Foreign capital flows into US assets and their impact on the strong dollar are also showing signs of softening, as trade tensions and policy unpredictability raise questions about long-term US economic stability (chart 2). Meanwhile, global imbalances remain entrenched—China and Germany continue to run high savings rates, while the US remains structurally dependent on external capital to finance its deficits (chart 3). Trump’s efforts to rebalance trade through protectionist measures may struggle to overcome these deeper economic realities, particularly as demographic trends reinforce the service-oriented nature of the US economy and constrain China’s transition to a consumption-driven model (chart 4). Other central banks are also caught in this evolving landscape—wage growth is slowing in Europe, but lingering inflation risks suggest that rate-cutting cycles could remain uneven (chart 5). For China, where the property market downturn has been a major drag on growth, recent policy measures have offered signs of stabilization, but the road to recovery also remains uncertain (chart 6). With the US economy at risk of slowing more sharply than anticipated, central bank policies finely balanced, and China’s long-term growth trajectory still in question, the coming months could prove pivotal in determining whether global financial markets find their footing or remain mired in volatility.

  • The recent financial market volatility, marked by sharp swings in bond yields and equity market repricing, reflects growing uncertainty about the trajectory of the US economy amid a rapidly shifting policy environment. The US administration’s latest tariff measures, and their conflicting objectives, have amplified uncertainty, stifled risk appetite and further ignited inflation concerns (charts 1 and 2). Markets are grappling with the inflationary impact of rising import costs, the potential supply chain disruptions caused by abrupt shifts in trade policy, and the broader implications of protectionism on corporate investment. Meanwhile, recent policy announcements from Germany and China, coupled with firming inflationary pressures in Japan, have pushed global (ex-US) bond yields sharply higher, potentially amplifying global financial instability (charts 3 and 4). These shifts could profoundly reshape global trade and investment, not just through economic fundamentals but also through a growing erosion of goodwill toward the United States. As policy unpredictability forces companies and governments to hedge against potential disruptions, trust in the stability of US economic leadership is weakening. At the same time, concerns are mounting over the effectiveness of US policy choices, particularly in relation to one of its core ambitions—reshoring manufacturing jobs (charts 5 and 6). The question remains whether these interventions will achieve their intended goals or simply accelerate automation and supply chain realignment elsewhere.

  • Financial markets have experienced heightened volatility in recent days, with investor sentiment rattled by rising US recession risks, escalating global trade tensions, and mounting geopolitical uncertainties. Sharp decline in US stocks, lower yields coupled with weaker confidence data reflect growing concerns that recent trade and economic policies from the US administration are sapping economic growth and increasing financial instability (chart 1). Beyond immediate market fluctuations, the long-term impact of these policies is also sparking a broader debate about the erosion of economic goodwill—the trust and stability that businesses and consumers historically associated with the United States (chart 2). Meanwhile, China and South Korea, two of the world’s most trade-dependent economies, are also feeling the strain with latest data from the latter suggesting sharply slower industrial production and weakening external demand (charts 3 and 4). The impact is also evident in Europe, where, having cut its key policy rates by 25bps this week, the ECB faces increasing challenges in calibrating monetary policy amid an uncertain economic landscape (chart 5). Finally, and looking at even broader issues, energy remains a critical variable in the global outlook. While the long-term energy transition continues, short-term concerns over trade-driven supply disruptions and geopolitical instability in energy markets add another layer of economic risk, reinforcing fears that persistent economic fragmentation could weigh on long-term growth across major economies (chart 6).

  • The global economy remains fragile, with financial markets showing resilience despite persistent policy uncertainties, geopolitical risks, and uneven growth. Investors have largely adopted a wait-and-see approach, balancing inflationary pressures and rising US trade protectionism against looser monetary policy and optimism about AI-driven productivity gains. This week’s charts highlight the growing complexities in global trade and economic policy, where traditional tools, such as tariffs, could be increasingly misaligned with economic realities. Recent US survey data, for instance, indicate a sharp rise in inflation expectations, likely fuelled by concerns over tariffs, which have simultaneously weighed on consumer confidence (chart 1). Meanwhile, latest US trade figures reveal a record deficit in goods trade alongside a widening surplus in services trade, further emphasizing why tariffs alone are unlikely to correct trade imbalances (chart 2). At the same time, shifts in US trade policy have coincided with near-record highs in global economic policy uncertainty. By dampening business and consumer confidence, this could weaken US export demand, complicating the intended effects of trade restrictions. Another dynamic is unfolding in Europe, where geopolitical tensions are prompting governments to increase defence spending, introducing yet another layer of uncertainty into the macroeconomic outlook (chart 4). In short, downside risks to global growth are mounting. Sector-specific and country-level risk indicators, such as those provided by our data partner Dun and Bradstreet, and which capture these underlying pressures, will certainly be useful for monitoring broader economic risks in the months ahead (charts 5 and 6).

  • Financial markets have remained relatively calm in recent days despite potentially disruptive US trade policy shifts (charts 1 and 2) and incoming data indicating that inflationary pressures have been lingering (chart 3). Investor sentiment suggests a wait-and-see approach, with markets appearing confident that central banks can navigate inflation risks without triggering sharp economic slowdowns. The muted market reaction may also indicate that the potential effects of recent tariff policies have already been priced in, with businesses and investors either viewing them as a bargaining tool or a long-term structural shift rather than an immediate shock. Additionally, the easing of geopolitical tensions in the Middle East and Ukraine has likely contributed to market stability, alleviating near-term risks to global supply chains and energy prices. However, vulnerabilities remain, particularly in Europe, where growth at the end of last year was notably weak, and high electricity costs continued to weigh on competitiveness, especially in the UK and Germany (charts 4 and 5). This energy disadvantage stands in notable contrast to the US, where lower prices have provided a relative economic edge. Meanwhile, Japan has shown signs of a cyclical rebound, supported by a recovery in exports and stronger capital expenditure, though consumer spending remains subdued (chart 6). Whether the global economy can maintain this fragile stability will depend on the interplay between trade policies, inflation trends, and central bank actions in the period ahead.

  • Recent weeks have brought significant shifts in financial market sentiment, reflecting changes in consensus views about the global economy. The latest Blue Chip Economic Indicators survey highlights the United States as a standout performer, with forecasters maintaining resilient growth forecasts compared to the rest of the world (chart 1). However, escalating concerns over US trade policy have led to sharp downward revisions in growth expectations for large open economies such as South Korea in recent months (chart 2). Inflation pressures also remain a key concern, which may have been amplified by the firmer-than-expected January US CPI data that were published this week (chart 3). CPI forecasts for most major economies, for example, have generally been climbing in recent months (chart 4). A notable exception is China, where inflation forecasts have continued to decline, and to worryingly low levels. Meanwhile, with Fed Chair Powell also signalling this week that the US central bank is in no hurry to cut interest rates, interest rate differentials remain a delicate balancing act for policymakers in many economies, particularly in Asia (chart 6). Recent financial market volatility certainly underscores the fine line central banks must tread as they navigate global economic uncertainties, including protectionist US trade policies and the ripple effects of shifting US monetary policy.

  • President Trump’s tariff policies have been a major driver of financial market volatility in recent days, sparking sharp swings in equities and currencies. While the administration has temporarily reversed its proposal for a 25% tariff on imported goods from Canada and Mexico, uncertainty surrounding US trade relationships, the risk of retaliatory measures from key trading partners, and broader concerns about global growth continue to unsettle investors. A fundamental irony is that the US trade deficit—the very issue that President Trump purportedly aims to correct—is not primarily driven by so-called “unfair” trade practices but rather by global savings and investment imbalances (chart 1). Nations such as China, Germany, and Japan have maintained high savings rates for several years, and their excess capital is continually recycled into US financial markets, where superior returns and deep liquidity have made the US an attractive investment destination. The persistent inflow of foreign capital strengthens the US dollar, reinforcing the trade deficit rather than narrowing it (charts 3 and 4). Indeed, the multi-year highs in the trade-weighted value of the dollar serve as clear evidence that capital has continued to flow into the US, sustaining deficits despite protectionist measures. Ultimately, Trump’s tariff-driven policies risk doing more harm than good, as they threaten to slow global growth, strain relationships with allies, and exacerbate inflationary pressures by raising input costs for US businesses and consumers. Rather than addressing the root causes of global imbalances (chart 5), such measures distort supply chains (chart 6), impair productivity growth, and fail to alter the fundamental drivers of trade deficits.