Financial market sentiment has rebounded in recent weeks, buoyed by signs of de-escalation in the US-led trade war and growing confidence that central banks—particularly the Federal Reserve—will step in with more rate cuts to cushion any fallout. Yet beneath the surface, a more sobering picture of the global economy persists. For example, latest PMI surveys reveal that global business expectations have slumped to their lowest levels since the pandemic, reflecting widespread unease about the growth outlook (chart 1). While supply chain pressures have so far remained contained, suggesting no repeat of the logistical chaos seen during the pandemic (chart 2), the latest Blue Chip Financial Forecasts survey reveals that forecasters are now pencilling in deeper and more widespread monetary easing than previously anticipated—an acknowledgment that demand is faltering (chart 3). Falling oil prices further reinforce this view: they are both a symptom of weakening global demand and a potential source of disinflation, reducing the urgency for central banks to maintain tight policy (chart 4). At the structural level, the US economy's increasing reliance on intangible assets—ranging from intellectual property to reputation—has made it more vulnerable to geopolitical frictions and the erosion of global trust (chart 5). This risk is compounded by America's dominant role in AI investment, a sector symbolic of both its economic strengths and its exposure to international perceptions (chart 6). The longer-term challenge, then, is not just navigating the current downturn, but ensuring that the institutional goodwill and cross-border openness that support the modern US economy are not sacrificed in a more fragmented and uncertain global order.
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| May 07 2025Charts of the Week: Relief Rally Meets Recession Risk
by:Andrew Cates
|in:Economy in Brief
- Global| May 07 2025
The Age of Constraints, Part I: The Great Economic Squeeze
Labour, Capital, and Energy in a Fractured World
The latest surge in US tariffs hasn’t yet shattered the global economy—but it has more openly revealed the fractures that were already there.
Long before the new wave of US protectionism, the world economy was drifting into a more fragmented, frictional phase. The free flow of goods, capital, labour, and energy—pillars of the late 20th-century global order—had been quietly eroding for years. What the tariffs have arguably done is to make the drift official. They have marked a turning point, not because they started something new, but because they confirmed that the previous global economic model was no longer sustainable.
Still, if US trade policies have clarified the direction of travel, they have also accelerated the journey toward fragmentation—often in ways that undermine the very resilience they claim to restore. By targeting countries and sectors, the US has reignited a zero-sum logic in global trade: one where national security concerns override economic efficiency, and where long-term cooperation is sacrificed for short-term leverage. This approach may score political points domestically, but it risks entrenching the same vulnerabilities it seeks to eliminate—raising input costs, disrupting investment, and pushing allies and adversaries alike toward parallel, disconnected systems.
Yet even without this protectionist turn, economic models were already under strain. The foundations of growth had begun to shift well before tariffs re-emerged as a policy tool. Labour markets were misaligned, with ageing workforces in some economies and idle potential in others. Capital was abundant but increasingly abstract—flowing into intangible assets and financial engineering rather than productive investment. Energy was no longer cheap, predictable, or apolitical. And trend productivity, which once rose smoothly on the back of scale and specialisation, had become choppy and contested.
This is the Age of Constraints—not a crisis, but a condition. A world where the fundamental factors of production no longer reinforce each other, but strain against one another. A world where efficiency is harder to come by, and where growth increasingly hinges not on accumulation, but on adaptation.
This commentary launches a three-part series exploring how these structural shifts—in labour, capital, and energy—are reshaping the world economy. In the next instalment, we’ll explore why artificial intelligence, is in fact a deeply pragmatic response to these constraints. But first, we must understand the systemic pressures that have brought us to this turning point.
But first, we need to understand just how deep the constraints run.
I. Labour: A Global Workforce Out of Balance
In the 20th century, labour was an abundant and cheap input. Factories expanded. Cities grew. Consumption soared. But in much of the world, that labour force is now shrinking—and ageing fast.
• Japan’s working-age population has fallen by over 10% since 2000. • China’s population began declining in 2023, with projections pointing to a loss of 400 million people by the end of the century. • Europe and South Korea face similar demographic cliffs.
At the other end of the spectrum, Africa and South Asia are entering a demographic dividend phase. Nigeria is projected to surpass the US in population by 2050. India now has more young people than any nation on earth.
by:Andrew Cates
|in:Viewpoints
Global| May 01 2025Charts of the Week: Tariff Truce, Tenuous Trust
Financial markets found a measure of calm this week, buoyed by some subtle shifts in tone from US policymakers. A softening in the administration’s rhetoric around trade tariffs coupled with a less confrontational stance toward Federal Reserve Chair Jerome Powell, helped ease tensions that had roiled markets earlier in the month. Equities rebounded modestly, and volatility indicators edged lower, reflecting cautious optimism that the worst of the policy shocks may be behind us. But beneath the surface, significant downside risks persist. New shipping data point to a pronounced slowdown in US-China trade flows (chart 1), suggesting the damage from recent tariff escalations is already rippling through global supply chains. Meanwhile, incoming data for the US revealed an unexpected contraction in the economy in Q1 and further signs of weakness in the labour market (chart 2). The US dollar, in the meantime, while long supported by superior growth and yield differentials, has begun to decouple from traditional drivers (charts 3 and 4) suggesting growing pressure on capital flows. At the same time, structural imbalances are drawing renewed scrutiny: unit labour cost comparisons show the US steadily losing competitiveness (chart 5), while nominal wage disparities remain stark versus China and other Asian economies, further complicating any effort to restore trade balance without broader reforms (chart 6). In short, while markets may be drawing temporary comfort from a pause in tariff brinkmanship, the deeper economic and financial vulnerabilities exposed this month remain unresolved—and increasingly central to the global macro narrative.
by:Andrew Cates
|in:Economy in Brief
- Global| May 01 2025
The Dollar Under Strain: The US Trade War and Structural Fragilities
The US dollar has rapidly become the central focal point for investors grappling with the fallout from recent US trade policy shifts. As markets absorb the economic and geopolitical implications of a more confrontational US trade stance, attention has turned squarely to the dollar—not just as a barometer of financial sentiment, but as a potential transmission channel for broader global instability. Its role at the heart of the international monetary system, coupled with the scale of the US current account deficit and reliance on capital inflows, makes any significant shift in dollar dynamics a matter of systemic importance. With yield differentials, trade balances, and competitiveness all now under scrutiny, the dollar is increasingly where macro fundamentals, policy risk, and global capital flows converge.
This shift, moreover, carries profound implications. When trade policy becomes a source of financial volatility rather than a tool for economic rebalancing, it raises the risk of destabilizing the very capital flows that sustain the US external position. As the world's primary reserve currency, the dollar is embedded in the global financial plumbing—from trade invoicing to cross-border lending and portfolio flows. Sudden policy-driven movements in the dollar can reverberate far beyond US borders, tightening financial conditions in emerging markets, disrupting asset allocation globally, and undermining confidence in the predictability of the international monetary system. In this context, US trade wars are no longer just bilateral disputes—they are global macro events, with the dollar serving as the principal shock absorber.
Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But the April US tariff actions—the dollar has weakened markedly even as the yield spread between the US and Germany has widened – see first chart below. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.
by:Andrew Cates
|in:Viewpoints
Global| Apr 25 2025Charts of the Week: Dollar Dips and Trade Trips
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.
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.
- of17Go to 1 page