On August 1, the United States published an updated list of its “reciprocal” tariffs. While this new version provides some clarity, it does not offer a long-lasting explanation of the Trump administration's protectionist policy. In the short term, it changes the game for certain countries, particularly India and China.
Despite the slowdown in inflation and the increase in household purchasing power (measured by real gross disposable income), private consumption in the Eurozone remains weak compared to the pre-Covid period. This sluggishness can be explained by the gap between harmonised inflation and households' perception of price trends. Recent developments in inflation and households' opinions on past price trends show a more marked divergence than before. Since early 2025, the associated opinion balances have not moderated much. This reflects the persistence of inflation in households' perceptions despite the observed slowdown. Households probably still have in mind (at least in part) the cumulative increase over the entire inflationary episode, rather than that over the last 12 months.
This time, these are not estimates based on models, but actual data provided by customs authorities. Partially available until the second quarter of 2025 in both China and Germany, they show a dramatic drop in exports to the United States in the wake of the tariffs imposed by the Trump administration, as well as the remarkable ability of international trade to redeploy when it is hindered in one area.
Non-performing loan (NPL) ratios of non-financial corporations declined in most EU/EEA banking systems between 2019 and 2024. On average, the ratio fell significantly to 3.38% in Q4 2024 (-2.4 percentage points since Q1 2019). Only the German, Austrian and Luxembourg banking systems recorded an increase, but they started from a level significantly below the EU/EEA average NPL ratio.
While FDI inflows into Southeast Asia have been higher on average since 2021 than in the 2016–2019 period, they have declined in India. As a share of GDP, net FDI inflows to India (non-resident FDI inflows minus disinvestment) reached only 0.7% of GDP in 2024, the lowest level since 2012. This decline is all the more surprising given that, according to UNCTAD, the value of greenfield FDI projects announced in the country has been rising sharply since 2022.
The rise in interest rates seen in the advanced economies since the end of Covid has been continuing in scattered order. Long-term interest rates have generally been on the rise, but with significant divergences. The general situation of uncertainty and the undeniably upward trajectories of public debt in advanced countries are having negative repercussions on the bond markets, which are likely to have a similar impact on the financing of the economy.
The quantitative theory of money — the idea that inflation in an economy depends on the quantity of means of payment in circulation — is a very old one. It is generally attributed to the French philosopher and jurist Jean Bodin, who, around the middle of the 16th century, was the first to have the intuition that the causes of the "rise in the price of all things" in Europe were to be found in the influx of precious metals from the New World.
In the coming months, a relaxation of the Basel leverage ratio (Supplementary Leverage Ratio, SLR) could be proposed in the United States. The aim is to ease the balance sheet constraints on primary dealers, most of which are subsidiaries of large banks, and thereby improve intermediation conditions in the US Treasury market.
The fall in global oil prices is one of the most dramatic effects of the uncertainty generated by the tightening of US trade policy. The price of Brent crude is now expected to average USD 65 in 2025-2026, compared with USD 80 in 2024, and the risks of a further fall are high. For the Gulf States, where hydrocarbons account for 60% of budget revenues and 70% of exports, the consequences will be manifold.
The EU-UK summit on 19 May marks a new phase in economic rapprochement, more than five years after the Brexit, which has undeniably weakened the UK economy. The structural challenges facing the UK – high inflation, sluggish business investment, low productivity – partly result from this event.
Since the Paris Agreement (2015), the green bond market has been on the rise. Although still modest on a global scale (USD 2,900 billion, which is barely 2.5% of total bond outstandings), its size has more than quintupled over the last five years. The eurozone has been the driving force behind this take-off, followed at a distance by the United States and China.
The recovery in loans for house purchase spread to all eurozone countries in March 2025, but the picture is still mixed. New loans to households for house purchase, excluding renegotiations, saw a year-on-year increase in all eurozone countries in March 2025, which is unprecedented since April 2022. However, it was a very mixed picture in terms of year-on-year increases, ranging from 4.3% in Croatia to 48.6% in Lithuania, with a volume-weighted average of 24.3% across the eurozone. As a result, new loans in the eurozone (EUR 60.3 billion) has returned in March 2025 to its August 2022 level, after hitting a low in January 2024 (EUR 37.0 billion).
Since January 2025, the United States has announced major reversals in its foreign and trade policies. For developing countries that depend on international aid, the suspension of USAID and the increase in tariffs on US imports create a double shock that will durably weaken their economic prospects.
The vast majority of Latin American countries have been subject to 10% tariffs, the minimum rate, since April 2, imposed by the Trump administration. This leniency is due to the composition of their exports (raw materials and energy, whereas the Trump administration's “reciprocal” tariffs mainly targeted exporters of manufactured goods) and the fact that most of them have a trade deficit with the US.
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.
Weekly charts highlighting points of interest in the world economy
