As we enter the second half of the year, and after a first half marked in particular on the economic front by the tariff warinitiated by the United States, we suggest that we pause and look back for a moment. This will allow us to understand the dynamics that have shaped our economies over the last six months. It will also help us to identify to what extent and in what way they will impact the economic outlook for the second half of the year. What scenario should we expect?
The volatility of oil prices reflects the uncertainties of the international environment. After falling in April following President Trump's announcement of "reciprocal" tariffs, oil prices rose by around ten dollars during the 12 days of conflict between Iran and Israel, before falling again since the ceasefire agreement.
Outside the US, GDP growth in the first quarter generally exceeded expectations in the European Union, the UK, and emerging economies, including China. After the surge in imports that preceded the US tariff hike, the backlash in the second quarter will be more limited than expected in most cases. However, it would be premature to sound the all-clear, as three dangers loom: tariffs, inflation, and public debt.
Contrary to what was feared at the end of 2024-beginning of 2025, exports of goods of emerging countries held up well in the first part of the year. Asian countries are showing the best performances and Latin American countries are doing well. On the other hand, Central European countries appear, if not as the losers, at least as the most vulnerable to the transformations of global trade since the Covid crisis. For a large majority of EM, corporates’ expectations about their order books in June suggest a decline or slowdown in exports in the coming 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.
The latest monetary tightening in the United States between March 2022 and July 2023 resulted in much larger outflows of portfolio investments by non-residents than during the previous tightening (2016-2018) and the famous taper tantrum of 2013. However, emerging economies are less vulnerable to monetary tightening across the Atlantic than they were a decade ago. On the one hand, the impact of "flight to quality" capital movements by non-resident private investors on risk premiums and local currency bond yields is less significant. Secondly, the level and structure of corporate debt have improved.
Main trade protection measures put in place since Donald Trump took office in the United States on 20 January, 2025
To highlight the publication of the second quarter issue of EcoPerspectives Emerging Economies, three members of the Emerging Economies team speak in ‘MacroWaves’: Christine Peltier, Cynthia Kalasopatan Antoine and Lucas Plé. This is an opportunity to take stock of the specific challenges facing countries.In this podcast, our economists review the consequences of US tariff increases on global growth, the dynamics of international trade reconfiguration, and the reorganisation of value chains. We will analyse the effects of these upheavals on emerging countries.
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.
“Europe will be forged in crises and will be the sum of the solutions adopted to resolve these crises,” wrote Jean Monnet. Faced with tariffs and the isolationist temptation of the United States, Europe has cards to play, such as intra-zone trade. The momentum of European growth over the next decade will depend on the financing and implementation of the European rearmament programme and Germany's ambitious investment plan.
The protectionist shock imposed by the United States will lead to further adjustments in production chains and global trade. Will emerging countries (excluding China) be able to benefit once again, even as competition from Chinese products intensifies on their domestic markets? Will they be able to gain market share in the United States, or even in China? Will they be able to reduce their dependence on either of the two superpowers?
Many European countries have decided to significantly increase their military spending, led by Germany. Will this effort be conducive to growth? This will depend on whether or not Europe is able to increase its production of military equipment. It will also depend on the possible crowding-out effects (inflation, interest rates) associated with an increase in public debt. The ability of European industry to meet demand (an increase in EU military spending from 2% to 3.5% of GDP) will be decisive. A reallocation of currently underutilised production capacity (mainly in the automotive and intermediate goods sectors) could help to increase production.
The tariffs imposed by the Trump administration and the acceleration of the US-China decoupling will lead to a slowdown in global economic growth, a further reconfiguration of international trade, and the continued reorganization of value chains. These changes will have multiple consequences for emerging countries. All will suffer negative effects linked to the slowdown in their exports and increased competition from Chinese products. Some may also seize new opportunities to attract FDI and develop their export base.
The first half of 2025 was marked by two major turning points: the outbreak of a global trade war by the United States and, on the European side, announcements regarding rearmament efforts and the German investment plan, supporting the Old Continent's economic revival. The second half of the year will be marked by the aftermath of these announcements and is likely to be as hectic as the first, given the continuing uncertainty surrounding the outcome of the tariffs. The uncertainty surrounding the extent of their inflationary impact in the US and the duration of the Fed's monetary policy status quo is also significant. The risk of a derailment caused by fiscal policy remains
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 gradual recovery in demand, which has been noticeable for almost six months, seems to be continuing in the Eurozone. It remains to be confirmed given the uncertainties surrounding US trade policy. Nevertheless, the trend towards improvement has not been called into question by the decisions taken so far. In the medium term, the implementation of the European rearmament plan and the German investment plans should strengthen this dynamic.
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.
In this new Podcast, we take a look at the short- to medium-term economic outlook for the major advanced economies, analysing the impact of trade tensions, the room for manoeuvre available and the expected economic dynamics.
Central European economies have defied pessimist predictions in recent years on their ability to cope with shocks. The region posted a less pronounced GDP contraction in 2020 compared to advanced EU countries. In 2022, at the onset of the Russia-Ukraine war, the region was viewed as the most exposed within Europe due its high energy dependence on Russia. However, the widely expected recession did not occur as these economies implemented generous fiscal stimulus. Central European countries are now facing the tariff shock imposed by the US administration. Will this time be different?
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.
The tariff offensive led by Donald Trump since his return to the White House has quickly shifted into a face-off with China. Following a cycle of announcements and retaliation, the extra-tariffs applied by the United States to China amount to 145%, compared to 125% in the opposite direction. The shock is of unprecedented magnitude, and the two superpowers are engaged in a negative-sum game.
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.
Last week, the Trump administration announced tariffs against the entire world which, added to those of previous weeks, will raise the average external tariff of the United States to 22%, compared with 2.5% at the end of 2024. Financial markets have reacted extremely badly, and suggest even more serious fears for US growth than for global growth. Many unknowns remain, but this scenario is the most plausible. For the United States' trading partners, it would be better to resist the temptation to escalate and instead to double down on strengthening the engines of domestic growth. Europe is particularly well placed to do this.
