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00:02:19 - Emmanuel Laborde
Hélène. Good afternoon.
00:02:49 - Hélène Baudchon
Good afternoon, Emmanuel, and hello to everyone watching us live or on replay.
00:02:52 - Emmanuel Laborde
It is a pleasure to have you with us today. You’ve taken on the challenge of summarising an entire business year in just 10 minutes. Let us begin by reflecting on events from 11 months ago. It is important to remember that the entire world, not just the economy, was in turmoil as President Trump commenced his second term, initiating it by announcing a massive increase in tariffs affecting all countries in the world and numerous economic sectors. These announcements were unprecedented in both their content and delivery. 11 months later, the situation has stabilised. What stands out in your memory?
00:03:27 - Hélène Baudchon
The fact is that Donald Trump’s return to the White House marks a significant turning point and presents a double shock: a tariff shock and a shock of uncertainty. It is true that this more protectionist trade policy was in Trump’s economic programme during the presidential campaign. So the uncertainty arises from the numerous reversals in President Trump's announcements since Liberation Day on 2 April. On that day, remember, the announcement was made regarding 1/ the introduction of so-called "reciprocal" tariffs on almost all countries in the world, which were reciprocal in name only, accompanied by 2/ a significant increase in these tariffs, varying in magnitude depending on the country and based on a fairly incomprehensible logic.
00:04:12 - Emmanuel Laborde
Indeed, we are still struggling to have a clear understanding of the situation. Considering that this was 11 months ago, a lot has happened since then, and we could even say that we have experienced a gradual de-escalation, which is rather positive news, wouldn't you agree?
00:04:22 - Hélène Baudchon
Certainly, it is quite positive news. Currently, US tariffs have landed at a lower level than we initially feared at the beginning of April. However, the tariff shock is still there, and it is substantial. For instance, we are witnessing an approximate sevenfold increase in the average effective customs duty on US imports of goods. The average effective tariff rate is now estimated to be around 17% compared to 2.3% in 2024. Furthermore, significant uncertainties remain, and the tariff schedule has become extremely complex due to various exemptions. All of this adversely affects global economic activity, with the United States likely being the most vulnerable.
00:05:11 - Emmanuel Laborde
So a protectionist shock occurred, accompanied by a noteworthy cooling in transatlantic relations at that time, which we still remember. The good news is that Europe did not remain idle. Reactions emerged quite swiftly, marking the second key event of this year. What reactions did you observe from Europe?
00:05:25 - Hélène Baudchon
Indeed, the good news is that Europe clearly heeded the warning signals in 2024, particularly those embedded in the Draghi, Letta and Noyer reports. And this revival of Europe is really a positive shock that counteracts the negative shock coming from the US mentioned earlier. It is true that Europe must now transition from this phase of recognition to one of action. For now, this action is progressing slowly, with insufficient advancements, as Mario Draghi recently noted. Christine Lagarde also reminded us of the urgent need to act so as not to lose more ground and, in particular, by making the single market a truly single market. However, on this matter and other fronts – the multifaceted nature of the European response is a significant strength that should be highlighted – there has been progress, and we believe that this new momentum should continue to expand.
00:06:17 - Emmanuel Laborde
You mentioned that progress has been achieved. Could you provide some specific examples?
00:06:20 - Hélène Baudchon
We should have in mind, for instance, the initiatives aimed at simplifying and making European regulatory frameworks more pragmatic (whether in technology, finance or competition sectors). We should also recognise the gradual advancements towards a more integrated savings and investment union. Additionally, we should underscore the willingness to balance competitiveness with sovereignty, while also addressing the challenge of decarbonisation. Lastly, I believe we should commend the speed and significance of the EU's dual response, evidenced by the notable planned increase in military spending in European countries and the substantial German investment plan. All of these actions have conveyed a positive signal for growth.
00:07:03 - Emmanuel Laborde
In summary, the beginning of 2025 was rather tumultuous, characterised by both pessimism and optimism, resembling an emotional rollercoaster, particularly in economic terms. Ultimately, how can we account for the resilience observed in the global economy?
00:07:17 - Hélène Baudchon
First, let’s try to identify the signs of this resilience of the global economy. It encompasses both advanced and emerging markets. This is particularly evident in the upward adjustments of growth projections for 2025, especially when we compare the forecasts from spring with the current assessments. Another sign is that, for the majority of the countries we cover, growth only slowed slightly between the second half of 2024 and the first half of 2025. The growth figures available for the third quarter of 2025 are also rather positive. Business confidence surveys have also been relatively well oriented, especially in the manufacturing sector. However, this is less true when we have a look at consumer confidence, which remained rather weak. Lastly, it is worth noting that, despite its fragility, growth in the euro zone has been on the rise for 2025, whereas growth in the United States has experienced a slowdown compared to 2024.
00:08:16 - Emmanuel Laborde
So, you have illustrated “the how” of this growth resilience. What about the why? These signs of resilience are somewhat counterintuitive. My question, once again, is how can we explain this growth?
00:08:23 - Hélène Baudchon
I would like to highlight three primary explanatory factors that, once again, are relevant to both advanced and emerging economies. Firstly, there has been a continued easing of monetary policy overall. Secondly, and closely related to this, global financial conditions have remained favourable, characterised by booming equity markets, a downward trend in the dollar and oil prices, and tightening credit spreads. Lastly, and perhaps most crucially, global trade has proven to be more resilient than anticipated. That said, I will immediately add that we believe that the full impact of the US tariff shock is likely still ahead of us. But so far, global trade has benefited from the rapid reorientation of trade flows in response to the tariff shock. The shock may also not be as biting as suggested by Donald Trump's announcements. Numerous exemptions have been granted, as I previously mentioned, and many trade agreements have been negotiated. Ultimately, between the resilience of global trade and the rise in equity markets, there exists one significant common factor: the boom in AI.
00:09:25 - Emmanuel Laborde
We will have the opportunity to discuss that later. Now, let us return to monetary policy, specifically regarding the Fed and the ECB, which are of particular interest to us. This is advantageous, as you and your teams closely monitor this subject, and we have often discussed about it during the previous editions of this conference. 2025 marks a rather intriguing and notable shift in stance for these two major central banks. First, could you clarify what changes each of them has implemented?
00:09:47 - Hélène Baudchon
In fact, what we have seen recently is that they have effectively swapped position. Since July, the European Central Bank has assumed the monetary status quo position that was previously held by the Fed until August, while the Fed has changed its stance and resumed its rate cuts, a position that was previously held by the ECB until June.
00:10:08 - Emmanuel Laborde
What prompted such a change?
00:10:10 - Hélène Baudchon
This reversal is due to a shift in the balance of risks and its assessment. On the US side, the Fed is now more concerned about downside risks to employment rather than upside risks to inflation (those due to higher tariffs). The fact is that the US labour market has shown clear signs of a slowdown, in both labour demand and supply. The unemployment rate has only risen slightly as a result, but the risk of a sharper deterioration cannot be ruled out, which the Fed is trying to prevent by adopting a less restrictive monetary policy. Regarding inflation, it is indeed hovering approximately one percentage point above the 2% target and it is on an upward trajectory; however, the recent increase has been relatively modest and is expected to remain so, to the extent that the Fed does not need to respond to this elevated inflation. It is also important to highlight that the Fed is somewhat divided on these various topics and faces an additional challenge, specifically the political threats to its autonomy.
00:11:16 - Emmanuel Laborde
It’s true that it is already a delicate balancing act, as you frequently point out, but with Trump applying pressure, the situation will not be straightforward. This will provide us with ample discussion points. What changes have we observed on the ECB side?
00:11:27 - Hélène Baudchon
In fact, it is worth noting that the ECB is in a more comfortable position than the US Federal Reserve, which is not often the case. It was able to continue lowering its policy interest rates until June to accompany the reduction in inflation and its return to close to the 2% target, thereby bolstering growth. Subsequently, with the reduction in downside risks to growth since this summer and inflation remaining near the target, the European Central Bank was able to maintain a status quo in its monetary policy. As a result, it finds itself in a good place, close to neutrality, while the Fed has not yet reached that stage.
00:12:07 - Emmanuel Laborde
This will be my last question on this overview of the year today. As we approach the end of 2025, we have several indicators that could be significant: the US markets are very high, the CAC 40 is also at record highs. Trends on the bond markets, energy prices and the price of gold are also of interest. These are all indicators that usually help us to better understand a situation, but right now it feels like they are all telling slightly different stories. Do you share this view?
00:12:33 - Hélène Baudchon
The fact is that these indicators are progressing in a rather disjointed fashion; they don't tell the same story. It illustrates quite well, let’s say, the complexity and diversity of the contemporary world and the changes that are taking place. So, on the one hand, we have the optimism, which has been unwavering so far, of the equity markets, particularly in the United States, which have for the most part demonstrated a rather astonishing ability to see the glass as half full. However, this enthusiasm is accompanied by an increasing risk of a market correction. In the oil sector, a similar sense of optimism has emerged in a way, as geopolitical tensions have not significantly influenced the market. The market has remained driven by its fundamentals, with an oversupply exerting downward pressure on prices. Conversely, the bond markets have been more responsive to the deteriorated fiscal conditions in several advanced economies. This vigilance, while selective and contained, raises genuine concerns regarding the potential for increased upward pressure on long-term interest rates. Lastly, the soaring gold prices, which have reached unprecedented levels, serve as a clear yet isolated indicator of risk aversion.
00:13:44 - Emmanuel Laborde
So we will need economists to interpret the economic landscape of 2026.
Thank you very much, Hélène.
