Economy

This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up here to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersHappy Sunday. Many thanks for your responses to the last newsletter, which went viral in Canada. I waded into the online debate on Ben Mulroney’s radio show (link here).Now to this week. Tariffs, uncertainty and a slowing US economy are leading analysts to cut their 2025 and 2026 annual growth projections for the global economy. That’s hardly surprising. Most did not expect Donald Trump’s return to the White House to be this disruptive from the get-go. Given the gloominess, I went looking for pockets of optimism. So here are five scenarios that could mean global economic forecasts surprise on the upside in the near term.Scenario 1: Trump dilutes his tariff plansThe recent plunge in the S&P 500 has not been enough to deter the US president from his tariff-raising agenda. But, as the Biden administration showed, the stock market and approval ratings don’t always move together. The latter tends to track consumer confidence (particularly for Republicans when Trump is in power), which has dipped recently as inflation expectations have risen. Some content could not load. Check your internet connection or browser settings.As the effects of import duties come through to households, confidence and approval could dip further. With Americans still reeling from a 20 per cent post-pandemic jump in the price level, their threshold for further pain is limited. This could raise pressure from the White House or the GOP to dial things down. The 2026 midterms will quickly come into view.Most analysts reckon this is unlikely. But Trump has a knack for watering down tariffs and easing deadlines. Even a slight pull back — including carve-outs, a more structured approach to trade policy or a delay to his April 2 “reciprocal” tariffs — would improve global growth forecasts relative to how damaging his tariff agenda could be in totality. Some content could not load. Check your internet connection or browser settings.Scenario 2: European growth surprises Most forecasters expect Germany’s plans for higher investment spending — and appetite for higher defence expenditure across Europe — to boost euro area growth. But there are three further potential upsides to consider.First, a number of positive developments are converging in the EU. Higher government spending, rising domestic stock markets and a “rally round the flag” effect in reaction to Trump’s tariff and Nato threats will boost consumer and business confidence. That could then generate a higher-than-anticipated real economic impact.For instance, with household savings ratios still close to 3 percentage points higher than pre-pandemic, there is ample room for less cautious consumers to rev up euro area growth. For companies, higher equity valuations and capital inflows could push more investment decisions over the line. Policy reform might be more forthcoming, too. Some content could not load. Check your internet connection or browser settings.Second, how the continent interprets its security spending needs matters. Goldman Sachs estimates that building up Europe’s materiel and matching Russia’s annual investment in new supplies could require at least €160bn per annum (around 0.8% of GDP). How the spending impacts near-term growth depends on its size, pace and nature, again leaving room for upside. (For instance, defence R&D spending could have positive impacts on other industries.)However, Andrew Kenningham, chief Europe economist at Capital Economics, is more sceptical. “Few countries will match Germany’s increase in deficit spending, multipliers on defence are likely to be low-ish as a lot of the money will be used for equipment rather than current spending, and some will be imported,” he said.Third, a ceasefire in Ukraine could bring down gas prices, increase risk-on sentiment in markets and raise confidence — boosting the euro area’s GDP by up to 0.5 per cent, according to Goldman.Some content could not load. Check your internet connection or browser settings.Scenario 3: China picks up global growth slackLikewise, upsides in China — the world’s largest exporter and manufacturer — would also boost global forecasts. How?First, rising private sector confidence could boost hiring and investment activity above expectations. Chinese artificial intelligence company DeepSeek’s shock progress in model development, Beijing’s stimulus measures and President Xi Jinping’s efforts to rebuild ties with China’s business titans following a clampdown on private wealth and tech are all positives. Global investors are encouraged, too; inflows into China-exposed equities have surged. Some content could not load. Check your internet connection or browser settings.Second, AI could boost China’s growth. DeepSeek’s low-cost, open source large language model raised optimism that the technology might be adopted faster. It will spur higher investment in data centres. Productivity gains may come through faster, too. Recently, businesses spanning the auto industry to telecoms have announced plans to use DeepSeek’s technology.Third, Beijing’s economic support could surprise. In this month’s National People’s Congress, the government committed to a fiscal deficit target of 4 per cent of GDP — the highest in three decades. Though analysts were hoping for more evidence of support for households, the communist party has become more vocal on the need to prop up demand.“A key difference in this year’s policy messaging compared to previous years is Beijing’s emphasis on maintaining flexibility and adaptability in policymaking,” said Jing Sima, China Strategist at BCA Research. “This suggests the central government remains open to providing additional economic support if necessary.”Some content could not load. Check your internet connection or browser settings.For both European and Chinese exporters, the hit from US tariffs will also depend on how easily American importers can switch to domestic suppliers. That could be harder than expected for some sectors, particularly amid broader US economic uncertainty. Scenario 4: US growth surprisesEven if Trump pursues tariffs, other domestic economic developments could cushion their effect. First, tax cuts and deregulation are still in the White House’s back pocket. An extension of the provisions in Trump’s Tax Cuts and Jobs Act (most of which expire at the end of 2025) will support consumption and investment at the margin. The Tax Foundation estimates this will boost long-run economic output by 1.1 per cent. Some content could not load. Check your internet connection or browser settings.A plan to cut corporation tax would build on that. Concerns over higher borrowing — which could push yields higher — risk eating into any upsides. (Extending the TCJA alone without offsets would raise the deficit by $4.6tn.) But if the bond market allows Trump to enact even some of his tax plans, that could reduce the growth hit from tariffs. A further boost would come from efforts to cut red tape, particularly to onerous planning requirements.Second, faster AI adoption is in the realm of possibility. Matthew Martin, senior US economist at Oxford Economics, suggests a combination of lower interest rates and tax reliefs next year could expedite AI investment. Though AI use across American businesses remains tame, diffusion is rarely a linear process. It’s possible breakthroughs and new applications of the technology could speed up its impact on productivity. Some content could not load. Check your internet connection or browser settings.Scenario 5: Lower interest ratesFinally, central bank policy rates could fall faster and further than consensus expects, propping up consumption and business activity. Right now inflation in advanced economies is driven by domestic factors — particularly services inflation, which is underpinned by wage growth. But indicators of labour market tightness such as hiring intentions and vacancy rates are easing. This means salary price pressures could fall faster than expected, allowing central bankers to make extra cuts.Some content could not load. Check your internet connection or browser settings.The prospect of imported inflation (as a result of tariff wars) is pushing up inflation expectations and raising concerns that high rates could have staying power. China could be an offsetting factor here. Sima at BCA Research notes that, in the last trade war, Beijing mobilised tax subsidies to cushion its exporters. This, combined with the possible diversion of US-bound Chinese exports to elsewhere, could help offset the inflationary impact of retaliatory tariffs on America.Some content could not load. Check your internet connection or browser settings.Are these scenarios too hopeful? Possibly. Each is underpinned by assumptions, ranging from blind spots around policy developments to the hard-to-measure economic effects of household, business and investor mood swings.Still, gauging how economic trajectories might change is a valuable exercise in itself, given that several prevalent market narratives have done a 180 in recent months (see: US exceptionalism, China’s “un-investability” and Europe’s unloved equities).However, the sheer scale and influence of the US economy and its capital markets means that for global growth forecasts to surprise notably on the upside (rather than being simply less bad than currently projected), the White House would need to alter its economic agenda. That’s not impossible. But I’ll leave the precise odds to the Trump- and MAGA-ologists.Send me your upside scenarios and thoughts at freelunch@ft.com or on X @tejparikh90.Food for thoughtFollowing a series of recent breakthroughs in automatons enhanced by AI, the University of Edinburgh unveiled the world’s first AI robot barista. The associated research paper underscores the economic opportunities that could come with smarter robot technology, beyond cups of coffee.Recommended newsletters for youTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldChina said it was ready for any “unexpected shocks”, ahead of US President Donald Trump imposing higher tariffs on the world’s second-biggest economy.Premier Li Qiang, responsible for the Chinese economy under leader Xi Jinping, told foreign business leaders gathered in Beijing on Sunday that uncertainty and instability were rising, but China would choose the “correct path” of globalisation and multilateralism. “We have preparations for possible unexpected shocks, which of course mainly come from external sources,” Li said. And in a thinly veiled swipe at what Beijing sees as western protectionism, Li urged attendees at the China Development Forum to be “staunch defenders” of globalisation and “resist unilateralism”.The US is expected to impose additional levies on imports from China on April 2, when it unveils “reciprocal tariffs” on countries around the world. Since taking office, Trump has already slapped 20 per cent tariffs on goods from China, in a move the White House says is designed to pressure Beijing to crack down harder on companies that make the ingredients for fentanyl, a sometimes deadly synthetic opioid that has triggered an epidemic of drug use in the US.The cautionary tone from the Chinese premier comes as Beijing tries to improve consumer and investor sentiment, while also preparing potential retaliatory measures against future US tariffs and sanctions.While Xi’s administration was caught off-guard by Trump’s 2016 election victory, Beijing is now armed with a quiver of potential countermeasures to new US pressure. They include curbing American access to supply chains for strategic minerals and resources.Amid calls from economists for Beijing to be bolder in addressing slowing economic growth, Xi’s government is pivoting towards more investment in cutting-edge technology and manufacturing, in part to steel itself for a more hostile geopolitical environment.There have been very few top-level talks between the US and China since Trump took office, barring one phone call between the president and President Xi Jinping. Trump last week said Xi would come to the US in the “not too distant future”, but people familiar with the conversations in Washington and Beijing said there had been no discussion about Xi travelling to America.Also on Sunday, Li met Steve Daines, a Republican senator from Montana who is very close to Trump, in a rare meeting between a senior American lawmaker and top Chinese official. Li, flanked by senior officials including finance minister Wang Wentao, called for improved ties between Washington and Beijing. “History tells us that China and the United States both stand to gain from co-operation and lose from confrontation,” he said to the US side, who also included Pfizer executive Albert Bourla and Qualcomm chief executive Cristiano Amon.According to Daines’ office, at a meeting on Saturday with vice premier He Lifeng, the senator reiterated Trump’s call for China to halt the flow of chemicals used to make fentanyl. It added that Daines had “expressed hope that further high-level talks between the United States and China will take place in the near future”.Earlier this month the State Council, China’s cabinet, released a new white paper outlining Beijing’s “rigorous control” over fentanyl-related substances and precursor chemicals. State media also pushed back on the pressure from Washington, saying the US had “shifted the blame” for its drugs problem “rather than taking responsibility itself”.Additional reporting by Joe Leahy in Beijing More

Argentina’s imports are rising rapidly as libertarian President Javier Milei bets on a strong peso and cheap foreign goods to help fight inflation, even as they put pressure on the country’s scarce hard currency reserves.As Argentina recovered from a recession that depressed imports and Milei began opening up the protectionist economy, the country’s inbound trade surged 30 per cent in the past six months compared with the previous period on a seasonally-adjusted basis, according to the national statistics agency.Italian pasta, Brazilian bread and Uruguayan butter have become increasingly visible on supermarket shelves, as retailers almost doubled food imports in the first two months of 2025 from a year earlier. Solar cell imports have grown tenfold, while farmers quadrupled overseas tractor purchases. The strategy of strengthening the peso while loosening import restrictions has helped tame spiralling inflation, but is not without risk. As the country spends more dollars abroad and fails to build up reserves, it becomes more vulnerable to an external market shock or a big devaluation that would undo Milei’s progress on inflation.The situation has piled pressure on the president to secure an IMF loan to replenish reserves, which he says will be delivered in April.Some content could not load. Check your internet connection or browser settings.The peso’s strength has become a politically fraught subject in Argentina, with Milei repeatedly attacking economists who describe risks in its appreciation as “econo-swindlers”. Several retailers declined to speak on the record about the peso’s role in rising imports, citing fear of angering the president and local manufacturers.Chinese imports are growing fastest, more than doubling in February compared to the same month last year, as business leaders visit the country to shop for suppliers. Previously restricted overseas purchases via ecommerce services such as Alibaba have skyrocketed.“People are filling the cargo stores of Buenos Aires airports with boxes,” said Ruben Minond, owner of cycling retailer Tienda Bike, who has stepped up purchases of Chinese bike lights and bags, and plans to start shipping bicycles by container.“I’m buying more overseas than locally now, because it costs less and it’s much, much easier than it used to be,” he added.Current import levels, of $5.9bn in February, are not unprecedented in Argentina, where trade flows have swung dramatically over the past decade.But the rapid growth reflects the tricky balancing act Milei must perform to deliver lasting stability.To tackle the normally conflicting goals of slashing Argentina’s severe inflation while at the same time restarting economic growth, the president has turned to the country’s strict currency controls.Following a big initial devaluation when he took office in December 2023, Milei let the peso slide only 2 per cent a month last year, despite inflation well above that rate. That has strengthened the currency 47 per cent in real terms, according to consultancy GMA capital. The peso’s appreciation has dragged down price pressures but made domestic goods much more expensive in dollar terms compared to other countries, while increasing Argentines’ purchasing power abroad.Alongside rising imports, Argentines are holidaying abroad in near-record numbers, as the strong peso makes Brazilian beaches and Chilean shopping malls affordable. The country recorded its second-highest monthly tourism dollar spend in January, at $1.5bn.As a result, Argentina has been running a current account deficit since June, while its trade surplus for goods narrowed to $224mn in February, down from well over $1bn a month for most of 2024.“This is the collateral damage of the strict exchange rate policy,” said Ramiro Blazquez Giomi, Latin America and Caribbean strategist at financial services group StoneX. “In the short term, the growing current account deficit puts pressure on the availability of dollars that the government needs to keep the currency stable [and avoid spikes in inflation].”Many healthy developing economies run current account deficits, mostly financing them with inflows of foreign investment, Blazquez noted. But crisis-stricken Argentina is receiving very little foreign investment and cannot borrow on capital markets. Therefore, without a current account surplus, Milei cannot build up the negligible central bank reserves he inherited, which remain about $6bn in the red excluding liabilities.But the government is undeterred and is slashing tariffs and cumbersome customs regulations on hundreds of goods.“We are continuing to cut taxes and tariffs to stimulate competition and keep lowering inflation,” economy minister Luis Caputo said this month as he chopped duties on textiles, one of Argentina’s most protected industries.Manufacturing leaders say the imports surge will force lay-offs in a sector that employs almost a fifth of the nation’s workers. Government officials say manufacturers are benefiting from cheaper imports of parts, and that businesses must become more competitive.Argentina’s President Javier Milei is aiming to avoid a big devaluation of the peso More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.International carmakers are rushing to ship vehicles and core components to the US to get ahead of the next round of President Donald Trump’s tariffs, which threaten to wreak havoc on automotive supply chains. In response to requests from auto manufacturers, car-carrying vessels have been dispatched to Asia and Europe amid plans to carry “thousands” more vehicles than usual to the US, according to industry officials.Lasse Kristoffersen, chief executive of the leading vehicle shipping line Wallenius Wilhelmsen, told the Financial Times that there was “more volume out of Asia than we’re able to take from our customers”. The company has added capacity to address the demand, he said, adding that the increase would be larger were it not for the industry’s shortage of car-carrier vessels.Trump has said that “reciprocal” tariffs on the US’s trading partners will come into effect on April 2 — the same day that a 30-day reprieve ends on the president’s pledge to impose 25 per cent tariffs on imports from Mexico and Canada. South Korean carmakers Hyundai and Kia were among those trying to ship more vehicles to the US before the new tariff deadline, according to another shipping executive. Hyundai declined to comment on its strategy but said: “We continuously optimise our shipment plans to adapt to market conditions.” An official at a German carmaker said it was shipping more vehicles from Europe to the US to address the tariff threat. The rush has led to a 22 per cent per cent year-on-year rise in vehicle shipments from the EU to the US in February, while those from Japan increased 14 per cent. Shipments from South Korea to North America were up 15 per cent.Stian Omli, senior vice-president at Esgian, a platform monitoring car carriers, said there was a “noticeable increase” in vessels heading from Europe to the US. “We do see an increase out of Europe and we will probably soon see an increase out of east Asia,” he said, adding that vessels needed to complete their journey to be counted. “There are a lot of car carriers reporting they will go to the US, which is a clear indication of increased activity.” Companies producing cars and components in Mexico and Canada are also preparing for tariffs on imports to the US. Honda is trying to bring forward shipments from these two countries, while Chrysler and Jeep owner Stellantis said it was moving stocks across the border into its US plants and producing more vehicles during the one-month hiatus.“When you look at the vehicles we produce in Canada and Mexico, we have a pretty good supply on the ground right now with our dealers, probably 70 to 80 days of most of those units,” Doug Ostermann, Stellantis’s chief financial officer, said at a conference on Tuesday. Another logistics executive who works in the car supply chain said manufacturers of electronic goods used in cars such as stereo systems were “looking to stockpile more into the US”. The approach is not uniform across the industry, however. Toyota said it “has not been increasing vehicle imports to the United States from Japan (or from other countries) in anticipation of possible future tariffs” while two Japanese car carriers reported little change in demand.While the 30-day delay to tariffs have given carmakers additional time to ship inventory to the US, Cody Lusk, chief executive of the American International Automobile Dealers Association said the bigger uncertainty was over how long the tariffs would last and who they would ultimately apply to. “We’re all waiting to see,” Lusk said. “Is each country treated differently? Is everybody the same?”Wallenius Wilhelmsen’s Kristoffersen said: “The bigger question is how will it affect the car trade over time . . . Customers are very uncertain which direction this will take.” Additional reporting by Claire Bushey in Chicago and Patricia Nilsson in Frankfurt More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Temasek and Warburg Pincus are preparing to put healthcare supply chain management company Global Healthcare Exchange up for sale, aiming at a valuation of almost $5bn, according to people familiar with the matter. GHX, in which the Singaporean government-backed investment fund owns a majority stake and the US private equity group the remainder, was working with advisers on a sale process, which could result in a partial or full- stake sale, the people said. GHX is expecting to receive formal bids in the second half of the year. The auction is the latest example of investment funds looking to offload assets in a push to realise returns on investments. Temasek has been invested in the company since 2017, while Warburg Pincus bought a minority stake in 2021. By mid-March, private equity groups had offloaded a total of nearly $119bn in assets globally this year, through sales or public listings. This is the second-highest level in two decades but still below the same point in 2021 when a boom in sponsor-backed deal activity resulted in $211bn of exits, according to a Bain analysis of Dealogic data. The GHX sale process was likely to draw interest from private equity groups as well as strategic buyers, but it might not result in a sale if the funds decided to hold on to the company, the people said. GHX provides cloud-based inventory, supply chain and payment management services for healthcare suppliers and providers. Temasek and Warburg Pincus declined to comment. GHX declined to comment on “speculation” about the sale process, adding that the company was “focused on delivering innovative supply chain solutions that improve efficiency and reduce costs for healthcare providers and suppliers”.This year, private equity groups have managed to engineer some large exits from software companies. Warburg Pincus, alongside members of the founding management team, fully exited a 90 per cent stake in electronic health records company Modernizing Medicine, selling to Clearlake Capital in a deal that valued it at $5.3bn, with the private equity group realising a nearly 10-fold return on its investment, according to people familiar with the matter. Thoma Bravo also struck a deal to sell energy software group Quorum to Francisco Partners for $2.4bn. Blackstone is also looking to exit electronic health records company HealthEdge. Temasek bought a stake in GHX from Thoma Bravo in 2017, valuing the business at $1.8bn. Warburg Pincus injected $500mn into the business in 2021, at which point Thoma Bravo fully exited its stake. Temasek has $291bn of assets in its global investment portfolio, while Warburg Pincus has $87bn in assets under management. More

When economists seek to account for the dollar’s outsize role as the only true global currency, they point to structural factors such as the US share of world GDP, or the depth and liquidity of US financial markets. This approach underlies the sanguine view of many financial market participants that, come what may, so long as the US remains the world’s leading economy, the dollar will remain its safe haven.The second Trump administration is a reminder that raw numbers can only take us so far. For as historians will tell you, it is the actions of people, not economies or markets in the abstract, that explain how international currencies rise and fall. It was people who took the crucial steps to build the institutions that made the international dollar. And it is people who will ultimately determine whether these same institutions survive or fail.Paul Warburg, chief architect of the US Federal Reserve More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldUS President Donald Trump has revoked security clearances for Kamala Harris and Hillary Clinton, his former rivals for the White House, as he expands his campaign of retribution against political opponents. Trump announced on Friday night that the former vice-president, and former First Lady and secretary of state, would be included in a list of individuals he wants stripped of access to sensitive government information. He defeated Clinton in the 2016 presidential election and Harris in 2024.Trump’s list also included Fiona Hill, the Russia expert who has been critical of his stance towards the war in Ukraine both during his first term in office and recently, as he has sought to broker a settlement of the conflict. “I have determined that it is no longer in the national interest for the following individuals to have access to classified information,” Trump wrote in a memo to the heads of government agencies. Trump had already included Joe Biden in the roster of people who should be deprived of security clearances, along with some of the former president’s top aides including Jake Sullivan, the former national security adviser, and Antony Blinken, the former secretary of state. Trump’s move highlights the extent to which he is using the first months of his second presidency to target political foes. This includes Democrats and also Republicans who have opposed his return to office, such as Liz Cheney, the former Wyoming congresswoman who was also stripped of her security clearances. Trump has also targeted Alvin Bragg, the Manhattan district attorney, and Letitia James, the New York State attorney-general, after they brought legal cases against him, including one that led to his conviction for falsifying business records last year. The rescission of security clearances for former officials and political foes is the latest instance of Trump gnawing away at the norms of US democracy, including the notion that even political critics of the president might need to access sensitive information. The move comes amid broader concerns that Trump is testing the limits of his constitutional powers in his efforts to deport and detain certain immigrants, as well as his sweeping drive to gut the federal government with mass firings and spending freezes. More