Last December, the Economic Research department of BNP Paribas invited you to discuss the consequences of Donald Trump's return to power on the global economy and its repercussions on energy and climate issues.Six months on, it is time to take stock of his second term's turbulent start. Faced with threats to trade and a new logic of negotiation by force, how will the United States' trading partners react? Will we see new alliances emerge or existing ones strengthen? How will China position itself? What about Europe?
Donald Trump has, for the most part, taken a wait-and-see approach following his destabilising announcements on trade tariffs. Nevertheless, the damage has been done and uncertainty remains high. Both growth and financing of the US economy could be affected. For the time being, the oil sector appears to be holding up well.
European energy policy is focused on two objectives: firstly, to progress in the low-carbon transition to reduce greenhouse gas emissions, and achieve carbon neutrality by 2050, and secondly, to increase energy sovereignty by diversifying sources of supply and reducing external dependencies.
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.
By accelerating the fall in oil prices, the timing between OPEC+'s decision to accelerate quota easing, and the Trump administration’s announcement of the start of a tariff war could limit inflationary pressures for US consumers and put pressure on the cartel's undisciplined members. However, the convergence of interests between the heavyweights of the oil market is likely to be short-lived. This policy is likely to make the economic equation increasingly difficult for US producers. At the same time, by putting pressure on public finances, it poses a risk to the cohesion of the cartel.
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).
Inflation has probably eased in February, particularly in France due to the marked cut in the regulated electricity price. However, this overall movement masks divergent trends. Although disinflation is becoming more widespread (two-thirds of the components in Insee’s index show inflation below 2% y/y in January in France), prices continue to rise rapidly in services, in France as well as elsewhere in the Eurozone. In the short term, a return of energy price inflation is possible in the Eurozone, but this is likely to be short-lived. The ECB is likely to continue to cut rates at its 6 March meeting, but the persistence of core inflation (below but close to 3% y/y) could change the pace of cuts thereafter.
The consensus view currently holds that the great divergence between the US and EU economies observed since the pandemic is bound to continue. As a snapshot of current conditions, it is certainly true that the US economy has a strong growth momentum and bullish animal spirits, while Europe has neither. But extrapolating from a snapshot, as instinct tempts us to do, is often wrong. In fact, there are solid reasons to expect the gap between US and Europe growth to shrink in 2025—as envisioned in BNPP’s central scenario, with the US economy slowing down and the Eurozone’s accelerating (albeit modestly so). Beyond the year-ahead outlook, there are at least 5 reasons to challenge the view that Donald Trump’s economic policies will make Europe even weaker. Let’s consider them in turn.
Energy policy was at the top of the agenda during the election campaign and in the first few weeks of the Trump presidency. Its objectives are to reaffirm America's domination of the global hydrocarbon market (the United States has been the world's leading oil producer since 2019) and to ensure low prices for US consumers. In practice, this is manifesting in a desire to increase US oil and gas production by three million barrels of oil equivalent per day, for an average crude oil production of over 13 million b/d in 2024. But is this goal realistic?
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.
On the global oil market, we currently have a slightly dynamic demand. China's oil demand in particular which represents around 15% of the global oil demand.
In order to achieve its climate targets, the European Union will not only have to green its electricity production, but also increase it. This is a daunting industrial and financial challenge, echoed in the “Draghi” report on the future of European competitiveness, as well as the new Green Deal proposed by the re-elected President of the European Commission, Ursula Von Der Leyen.
In 2019, the European Union (EU) adopted a very ambitious Green Deal, setting a 2050 climate neutrality target for the 27 member states. Since then, the Fit for 55 legislative package (in 2021) has been introduced, followed by the series of REPowerEU directives (in 2023) detailing the process to speed up reducing greenhouse-gas emissions (to at least twice the current pace). The main focus has been on developing renewable energies, whose share is set to double within six years, accounting for 42.5% of end-energy use by 2030.
In August 2024, French inflation is expected to fall back below 2% year-on-year for the first time in three years (August 2021). This disinflation is mainly linked to energy prices and is expected to increase further at the start of 2025 for the same reasons (expected drop in electricity prices). By contrast, inflation in services, which has been impacted by an Olympic effect in particular, is expected to remain high in the short term, but will not prevent further disinflation.
Energy and mineral commodities are central to the low carbon transition process. Latin America, which boasts abundant amounts of minerals and key metals for the transition, and GCC[1] countries, which are dependent on revenue from hydrocarbons, are seemingly, on the face of it, taking contrasting paths on the transition journey. However, the macroeconomic consequences cannot easily be determined currently. Gulf countries have some advantages in the oil market, but the pace of the transition could affect revenues more quickly than expected. In Latin America, while the size of critical minerals reserves is brightening the outlook, various national strategies and numerous constraints could curb the scale
Since the adoption of the European Green Deal on 11 December 2019, European climate strategy has stepped up. Far from paralysing its climate action, the health crisis was the backdrop for the adoption of NextGenerationEU. This recovery plan has mobilised considerable resources to meet the European Union’s needs in terms of climate and digital transition, healthcare and education. While its implementation is only halfway through, the first positive effects can already be observed. Other mechanisms (including REPowerEU, the carbon border adjustment mechanism and the Critical Raw Materials Act) have been added to this plan to respond to the new challenges that have arisen since the Covid-19 pandemic and the war in Ukraine (supply security, energy dependence)
For any country, carbon footprint is measured not only by what it produces, but also by what it imports. Of the 9.2 tons of greenhouse gases (GHG) emitted annually by each French person, more than half (5.1 tons) are attributable to goods and services purchased abroad.
Canada has experienced sluggish economic growth in 2023, owing to rising prices and higher credit costs, which had a direct impact on the investment and consumption channels, despite the benefits of the country’s growing population. Furthermore, one cannot expect a significant improvement over the short run. Canadian households are amongst the most indebted in the world. Admittedly, their level of net wealth contributes to offset this fact, but it still implies an increased vulnerability against the backdrop of monetary tightening and a deteriorating labour market
Less active on the environmental front, European policy to combat climate change continues to score points in terms of decarbonization.
Whereas in 2022, France imported electricity, it became a net exporter again in 2023. This result was driven by a drop in consumption of almost 6% from the autumn of 2022, before the partial rebound in nuclear power and the rise in renewable power allowed production to increase in 2023. Additional efforts will have to be made to meet the targets set for 2050, but what was made in 2023 is a necessary starting point.
Faced with the urgency of climate change, many countries have begun their ecological transition, with the war in Ukraine only accelerating the movement. After soaring in 2022, investment in “clean” energies is set to reach a new record in 2023: around USD 1,800 billion worldwide, or 1.7 points of GDP, according to estimates by the International Energy Agency (IEA). Although the search for new fossil fuels has not yet come to a halt, it is now mobilizing less capital (around USD 1,200 billion).
Since its publication last May by France Stratégie, the "Pisani-Mahfouz" report on the cost of ecological transition in France has been the subject of numerous, sometimes imprecise comments. For example, the main quoted figure of EUR 66 billion does not refer to the investment required for decarbonization, but to a net additional financing requirement. Explanation.
