For several years now, Italy has had to generate primary budget surpluses in order to stabilize its public debt. The current level of fiscal deficits and the foreseeable increase in interest payments are likely to put the United States, the United Kingdom, and France in a similar situation in the coming years. These countries will ultimately have to balance their primary budgets if they want to stabilize their public debt.
On Wednesday 5 March, the 10-year Bund yield increased 30bp, the biggest rise since the fall of the Berlin Wall. It continued to move higher the following days, reaching a peak on 11 March. The trigger was the announcement by Friedrich Merz (CDU) and the heads of the CSU and SPD during an evening press conference on Tuesday 4 March 2025 that they agreed to reform the debt brake, that defence spending above 1 percent of GDP would be exempt from this debt brake and that a EUR 500bn fund for infrastructure investments would be created. The developments in the German bond market had sizeable spillover effects across markets in the Eurozone. This didn’t come as a surprise.
Faced with US disengagement, the European Union has decided to close ranks and reinvest massively in its defence. On 6 March, the European Council therefore approved a plan that would theoretically raise EUR800 billion. This plan is split into two parts. The first will allow each Member State to deviate from its spending trajectory by 1.5% of GDP on average over a four-year period, without being subject to an excessive deficit procedure. In theory, this mechanism would provide an additional EUR650 billion of budgetary leeway. For the time being, several national governments have announced that they will not make use of the escape clause (France) or are not favourable to it (Italy, Spain).
How will Beijing react to the imminent US protectionist measures? Will the central bank allow the yuan to depreciate in order to offset the effect of tariff hikes on the price competitiveness of Chinese exports?
President Donald Trump has promised to bring manufacturing jobs back to the USA and make America again “the manufacturing superpower of the world that it once was”. This, of course, is the foremost objective of his radical tariff policy (alongside raising revenue and pressuring trading partners to deliver non-trade-related concessions). In his analysis, the US persistent trade deficit is evidence that the rest of the world is “ripping off” the US, through unfair trade barriers and overly weak exchange rates. As a result, the argument goes, the US industrial base is being hollowed out, undermining the living standards of Americans.
In a 1933 article on national self-sufficiency, British economist John Maynard Keynes advised “those who seek to disembarrass a country from its entanglements” to be “very slow and wary” and illustrated his point with the following image: “It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction”. Nearly a century later, what are the precepts of the author of the General Theory worth?
Concerns are mounting over US growth. Fears of a rebound in inflation and the shock of political uncertainty are weighing on households and businesses. Initial hard data for Q1 are adding to fears of an ongoing deterioration. And at this stage it is unlikely that the Fed will come to the rescue of the economy. Here is a quick overview of the warning signals sent out by the US economy.
Against a backdrop of falling interest rates, new banking loans (excluding renegotiations) to households and to non-financial corporations (NFCs) in the Eurozone continued to accelerate in January 2025. Cumulated over one year, new loans to the non-financial private sector (NFPS) increased by 8.6% year-on-year, after 7.4% in December 2024, to EUR 3,437 bn.
Resilience of external financing conditions overall. The election of Donald Trump to the White House has caused a rally in the US dollar and revived uncertainties about the external financing conditions of emerging countries. The Argentinean peso, the Turkish lira and the South African rand are among the emerging market currencies that recorded the largest depreciations between November 5th, 2024, and February 24th, 2025, losing 6.3%, 5.7% and 5.2% of their value against the US dollar, respectively. Overall, emerging sovereigns should be relatively resilient against a stronger dollar and the risk of increased investor selectivity towards risky assets. However, all of them are not in the same boat
To reduce the United States' bilateral trade deficits, a subject already raised in a previous Chart of the week, the Trump administration has broadened its angle of attack, by attacking the differences in customs duties between the country and its trading partners. The introduction of reciprocal tariffs, still under study, would be specified at the beginning of April.
Who's next? As soon as he became the 47th President of the United States, Donald J. Trump drew the weapon of tariffs, “the most beautiful word in the dictionary”, as he put it. Mexico, Canada and China were the first to be hit, while the European Union (EU) was explicitly targeted.
While the Fed lowered its target rate by 100 bps from 18 September 2024, bond yields rose by around 80 bps (as at 7/2/2025). This rare divergence is reminiscent of an inverse version of the ‘Greenspan conundrum’ (2004–2005): during this episode, which spread to Europe, the rise in short-term rates had little effect on long-term rates. What are the reasons for these contrary movements between short- and long-term rates, and what might the implications be?
Central European countries are relatively well-positioned in industrial sectors with high technological content. However, there are differences, with regards to the respective percentages of tech products in value added and in manufacturing sector exports. The share of the high-tech sector, consisting of only three segments in the sector approach (pharmaceuticals, IT/electronics/optical and air/spacecraft), is relatively modest, but the percentage of “medium-high-technology” sector (chemicals, weapons, electrical equipment, machinery, motor vehicles, other vehicles, medical devices) is high. However, these two sectors are also very technology-intensive
According to an unpublished study conducted within the Single Supervisory Mechanism (SSM), if it were to perform its functions in the Eurozone, the US supervisor would be stricter, in terms of risk-weighted capital requirements, with respect to the systemically important banks (G-SIBs) established there, than the single supervisor of the Eurozone. The methodology of the exercise on which this conclusion is based has not been shared. However, it seems very complex to define.
“Not all died, but all were stricken”. While the Covid-19 pandemic spared no one, its consequences, particularly on the budgetary front, were not the same for everyone.
While in most major advanced economies the year-on-year growth in nominal wages has been back above inflation for a few months now, we can ask ourselves where households’ purchasing power stands compared to its pre-inflationary crisis level. This purchasing power can be measured in two ways: in the broad sense and more accurately, when it is calculated on the basis of the real gross disposable income (GDI) of households; and in a narrower sense, but perhaps more meaningful for households, when it is assessed on the basis of real wages.
The British example tends to suggest otherwise. Its impact on monthly payments remains modest compared to that of interest rates and rising property prices, and is offset by the higher total cost of the loan. In addition, longer loan maturities are likely to fuel the rise in property values.
Despite negative net long-term public debt flows over the period 2021-2023 (see chart), China remains the top lending country to Sub-Saharan African states, ahead of France, the UK and the US. However, long-term public debt owed to China contracted by 4.5% in current dollars between 2019 and 2023, while debt owed to all creditors increased by 15.6%.
The eurozone’s net international investment position in terms of direct and portfolio investment recovered significantly between 2015 and 2022, becoming positive from 2021 onwards, meaning that the eurozone has become a net creditor to the rest of the world. However, the income it receives from these assets is lower than the income it pays to non-resident investors. What are the reasons for this?
While emerging economies (EMEs), apart from China, have contributed little to global warming, the future CO2 emissions curve and the resulting additional temperature rise will largely hinge on their ability to conciliate growth and decarbonisation. However, due to limited financial resources, their investments in the "green" transition are low, at around 50 dollars a year per capita, compared to investments which are around seventeen times higher (850 dollars a year per capita) in developed countries. This disparity gave rise to the idea of securing transfers from developed to developing countries at the Copenhagen Conference of the Parties (COP), in 2009.
The election of Donald Trump as President of the United States has raised fears that protectionist measures will be stepped up. Customs duties would be applied to all products from all of the United States' trading partners. In addition to China, the main country targeted, concerns about the macroeconomic and financial consequences of such a policy have risen sharply in Mexico.
In Spain, Italy and Portugal, the five largest banking groups recorded, on average and on a consolidated basis, an annualised return on average equity (ROAE) of 15.0%, 15.6% and 18.1%, respectively, in the first three quarters of 2024. These are levels not seen since 2007.
In France, in Q3 2024, for the first time (statistical series dating back to 1949), non-financial companies invested more (in billions of euros, at constant prices) in "information and communication" than in construction. This shift was bound to happen sooner or later, given the trend towards intangible investment (in which "information and communication" is the main item). In particular, this growing weighting goes hand in hand with the increasingly widespread use of electronics and software in today's goods, including in traditional sectors such as the automotive industry.
After Katrina in 2005, Hurricane Helene, which hit the south-east of the United States at the end of September, was one of the most destructive climate events ever seen across the Atlantic (with more than 200 deaths and approximately USD 50 billion in property damage to date). Symbolically, the National Oceanic and Atmospheric Administration (NOAA) was one of the collateral victims of the disaster. As a result, its temperature readings, which are referenced across the world, temporarily stopped being published.
In the main emerging economies, the pace of disinflation is slowing and the cycle of monetary easing began more than a year ago. Egypt is an exception to this trend, due to a severe balance-of-payments crisis that affected its economy until early 2024. Inflation only began to moderate in Q2 2024, and the Central Bank of Egypt decided to leave its key rates unchanged at its Monetary Policy Committee meeting on 17 October 2024.
Weekly charts highlighting points of interest in the world economy
