Financial market volatility has remained elevated over the past several days as investors attempted to weigh a modest improvement in sentiment—driven by a potential, if partial, retreat by the US administration from its aggressive tariff stance—against a still-cloudy global outlook. Signals from flash PMI surveys on global growth remain mixed: Europe continues to stagnate, with the UK particularly weak, while India stands out with resilient and rising manufacturing activity (chart 1). In the US, most of the incoming data suggest that business confidence has faltered, with capital expenditure intentions plunging particularly sharply in the wake of the April 2nd tariff announcement (chart 2). The drag from trade tensions is, moreover, becoming more evident: South Korea’s exports have slumped, especially to the US, and even sectors granted exemptions—like semiconductors—are showing signs of strain (chart 3). These pressures are reverberating through financial markets as well, where Chinese investors are shifting into gold as a hedge, fuelling record trading volumes on the Shanghai Gold Exchange and lifting global gold prices (chart 4). Meanwhile, a broadly-based decline in the US dollar and persistently high readings on the VIX index arguably reflect a deeper reassessment of US assets as reliable safe havens amid mounting policy unpredictability (chart 5). Beneath these short-term ripples lie more entrenched structural challenges: the US is seeking to rebalance away from external deficits linked to its reserve currency role, while China is under growing pressure to pivot toward consumption-led growth—an imperative sharpened by American efforts to choke off its export strength (chart 6). In short, the latest softening in US trade rhetoric may offer brief relief, but the underlying economic, geopolitical, and structural crosswinds remain very much in play.
Introducing
Andrew Cates
in:Our Authors
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
Global| Apr 25 2025Charts of the Week: Dollar Dips and Trade Trips
by:Andrew Cates
|in:Economy in Brief
Global| Apr 17 2025Charts of the Week: From Blue to Red
U.S. policy decisions have sparked a sharp rise in financial market volatility in recent weeks, reflecting mounting investor unease about the global economic outlook. Consensus forecasts for growth in 2025 have been revised down significantly, while inflation expectations—particularly in the US—have moved higher, highlighting the stagflationary risks associated with the sweeping tariff measures introduced in early April (Charts 1 and 2). Although these actions have since been partially rolled back, the broader shift toward protectionism is already disrupting global trade flows and could soon feed through to consumer prices, compounding the challenge for central banks already struggling with sticky inflation. In parallel, measures of financial market stress have climbed to multi-month highs as investors reassess risks in an increasingly fragmented and uncertain environment (Chart 3). Business sentiment has also deteriorated notably, with this week’s Empire State Manufacturing Survey showing a collapse in forward-looking expectations (Chart 4). Adding to concerns, global shipping costs have begun to rise again, raising the risk that renewed supply chain frictions will put upward pressure on goods inflation across advanced economies (Chart 5). Finally, in China, hopes for stabilization in the property sector are fading. Despite some recent stabilisation in house prices, real estate investment continues to contract sharply, suggesting that structural headwinds remain firmly in place (Chart 6). Taken together, this week’s charts point to a fragile global economy contending with greater protectionism, rising inflation risks, weakening business confidence, and subdued demand—all of which are reinforcing the ongoing malaise in investment sentiment.
by:Andrew Cates
|in:Economy in Brief
- Global| Apr 15 2025
Stagflation, Strategy, and Uncertainty: The Global Fallout of US Economic Policy Reversals
The current moment in global economic policymaking is marked less by direction than by dissonance. Nowhere is this more evident than in the US, where the return to tariff-based policy in early 2025 has underscored the contradictions at the heart of its economic agenda. Yet just as markets and policymakers began to absorb the implications of a more protectionist stance, Washington has partially reversed course—modifying or delaying some of the proposed measures. However, this retreat, rather than offering clarity, has only deepened global uncertainty, complicating the outlook for inflation, growth, and international cooperation.
Forecasts reflect this disorientation. Across major economies, expectations for GDP growth in 2025 have been revised downward in recent months, while inflation projections have edged higher (charts 1 and 2). This divergence—a hallmark of stagflation risk—signals a world in which economic constraints are no longer primarily demand-driven, but stem from structural disruptions to supply and trade flows. While not yet systemic, this shift poses mounting challenges for policymakers.
by:Andrew Cates
|in:Viewpoints
Global| Apr 10 2025Charts of the Week: Mission Impossible and Fallout
The sweeping tariffs announced by the US administration on April 2nd have sent shockwaves through global markets and exposed deep contradictions in the strategy underpinning them. While billed as a corrective to US trade imbalances and a lever for industrial revival, the policy has triggered immediate financial aftershocks—equity sell-offs, capital outflows from emerging markets, rising volatility, and a collapse in sentiment. All that said, the global economy received a brief reprieve on April 9th, as President Trump announced a 90-day pause on his sweeping “reciprocal” tariffs. However, intensifying US-China trade tensions (see chart 1) continue to cast a long shadow over the outlook. A broader point here is that for all the geopolitical signalling and near-term protection, tariffs are unlikely to restore lasting balance to US trade. US fixed investment patterns and advanced technology production show the country’s competitive edge lies in intellectual property and high-value services, not goods susceptible to border taxes (chart 2). With the U.S. economy still growing faster than many of its peers, import demand is structurally strong, and supply chain substitution will take time—if it happens at all (charts 3 and 4). Meanwhile, markets are still pricing in a hit to earnings and extreme policy uncertainty (charts 5 and 6).
by:Andrew Cates
|in:Economy in Brief
- Global| Apr 04 2025
Why Tariffs Won’t Rewire the World Economy
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.
by:Andrew Cates
|in:Viewpoints
Global| Apr 03 2025Charts of the Week: Trade Shocks
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.
by:Andrew Cates
|in:Economy in Brief
- 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.
- USA| Mar 31 2025
Strategic Uncertainty and Market Pricing: A Game Theoretic Perspective on Recent US Policy Shifts
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.
Global| Mar 27 2025Charts of the Week: Tariffs, Tensions, and Trade-Offs
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).
by:Andrew Cates
|in:Economy in Brief
Global| Mar 20 2025Charts of the Week: Reversal of Fortunes
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.
by:Andrew Cates
|in:Economy in Brief
Global| Mar 13 2025Charts of the Week: From Blue to Red
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.
by:Andrew Cates
|in:Economy in Brief
Global| Mar 06 2025Charts of the Week: Goodwill Hunting
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).
by:Andrew Cates
|in:Economy in Brief
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