Economy

“President Trump did not impose tariffs on day one. Instead, he issued a presidential memorandum entitled ‘America First Trade Policy,'” Barclays said in a note. “Investors should read the memorandum as a blueprint for what to expect next on tariffs.”The memorandum directs certain departments and agencies to review and issue reports by April 1, 2025. These reports, the analysts believe, are likely to serve as the catalysts for new tariff proposals or adjustments to current tariffs. In further support of the Apr. 1 as key date to watch, the analysts believe the timeline also provides ample time for the Senate to confirm key positions, including Howard Lutnick as Commerce Secretary and Jamieson Greer as US Trade Representative. These two roles need to be filled before the Trump administration begins to alter tariff policy, the analysts added.Following the reports due on Apr. 1, changes to tariff policy could be announced, likely taking effect 30-to 60-days later, Barclays said.  The presidential memo suggests that various tariffs could be on the table including a universal tariff and tariffs targeting China, Mexico, and Canada.Trump has, however, already threatened to impose 25% tariffs on Mexico and Canada starting Feb 1, and up to 100% tariffs on China over TikTok, but Barclays believes the timeline proposed in the memorandum carries more weight rather than these “off-the-cuff remarks.”The memorandum also calls for investigations into the causes of the U.S.’s annual trade deficits in goods and recommendations for remedies, which could include “a global supplemental tariff or other policies.”This suggests that “countries and sectors most vulnerable to targeted tariffs could be those with the largest trade deficits in goods with the US,” Barclays said. More

Each of these factors contributes to the broader economic landscape, necessitating attention from policymakers.Weak household consumption remains a central concern for the German economy. High inflation and rising living costs have significantly impacted household purchasing power, leading to reduced consumer confidence. As households tighten their budgets, the overall consumption levels decline, which further stifles economic growth. Investing.com — This environment not only affects retail and service sectors but also dampens investment sentiment, creating a cycle that limits recovery.In addition, Germany’s export performance has weakened relative to the global demand landscape. While the country has historically been a dominant player in international trade, recent data indicates a lag in its export growth compared to other nations. Factors such as supply chain disruptions, rising production costs, and shifting consumer preferences have contributed to this decline. As competitor countries capitalize on new opportunities, Germany must address its export strategies to remain competitive in a rapidly changing global market.Lastly, the issue of low potential growth looms large over Germany’s economic horizon. Structural obstacles, including an aging population and insufficient workforce growth, have hindered productivity advancements. This stagnation in potential growth limits the economy’s capacity to expand and innovate, ultimately impacting long-term sustainability. Without reforms to enhance productivity and attract talent, Germany risks falling behind its peers in Europe and the global economy. More

While historically common (1960s) and adopted by some nations (e.g., Poland), Germany’s current economic situation presents obstacles.Germany’s sluggish economic growth is a key obstacle. The country is projected to grow at an average rate of just 0.5% annually in the coming years, far below the levels required to accommodate a substantial increase in defense expenditure without impacting other sectors. Historically, faster economic growth allowed Germany and other nations to manage high defense spending more effectively, as rising GDP inherently increases government revenue. Without accelerating economic growth, Germany would need two decades to gradually increase defense spending to 4% of GDP, a timeline that is politically and strategically impractical, Commerzbank added.Reducing spending in other areas of the federal budget offers a partial solution, but the scope for such savings is limited. To close the gap through budgetary cuts alone, Germany would need to reduce federal civilian spending by nearly 20% over four years. Potential savings from social spending cuts and government efficiency improvements would be insufficient to fully fund increased defense spending. While reallocating funds from climate initiatives, such as through more efficient carbon pricing, could generate savings, this would likely face significant political opposition.Financing the defense increase through debt is another option, but it raises legal and economic concerns. Such an approach would nearly double Germany’s budget deficit from 2% to 4% of GDP, violating European debt rules and the constitutional debt brake. The current reliance on shadow funds to finance core state tasks like defense is unsustainable in the long term, emphasizing the need for these expenditures to be integrated into the regular budget.Germany’s rising risk premiums on government bonds further complicate debt-based financing. As noted by Commerzbank, weak economic growth has already led to noticeable increases in financing costs for government bonds. To ensure sustainable debt levels, structural reforms are crucial to boost economic growth and tax revenue. Increasing productivity and investing in growth sectors can reduce the burden on public finances and improve the country’s ability to fund higher defense spending. More

Argentina achieved a record $18.9 billion trade surplus in 2024, according to official data released on Monday, which largely coincided with libertarian President Javier Milei’s first full year in office, reflecting the impact of his economic policies.Milei’s administration inherited spiraling inflation, depleted international reserves, and extensive economic imbalances that led to a very high probability of a credit event, according to Moody’s. “Decisive fiscal adjustment, alongside measures to halt monetary financing were put in place and have proven effective in addressing imbalances,” it said. Argentina’s financial markets have been buoyant due to Milei’s tough “zero deficit” policies, cooling inflation and the government’s commitment to meet its debt obligations.Moody’s upgraded Argentina’s credit rating for the first time in five years, following a downgrade in 2020 as disrupted debt restructuring talks amid the global pandemic increased the country’s risk of slipping into default.Argentina’s outlook has also been revised to “positive” from “stable” on Friday, as the government continues to make progress on its macroeconomic stabilization program. More

The East-African country has been struggling with heavy debt and looking for new financing lines since last year due to nationwide protests against proposed tax increases. Domestic financing costs have started to decline amid a monetary easing cycle and this could continue if the Kenyan government effectively manages its fiscal consolidation, opening doors for external funding options, the report said.”Given low inflation and a stable exchange rate, there is potential for further reductions in domestic borrowing costs as past monetary policy rate cuts pass through to lower long-term borrowing costs,” Moody’s said. The agency added that a new International Monetary Fund program would enhance Kenya’s external financing while other multilateral creditors such as the World Bank will continue to be significant financing sources, even without the IMF funding.The agency affirmed Kenya’s local and foreign-currency long-term issuer ratings at “Caa1”, citing still elevated credit risks driven by very weak debt affordability and high gross financing needs relative to funding options. More

In the absence of clarity on U.S. trade policy, “risk-on should persist,” strategists at MRB Partners said in a Friday note, underpinned by solid U.S. economic growth and gradually strengthen in the rest of the world. But the downside of this economic outlook is that “it will put a floor under DM [developed market] inflation (and bond yields), with the risks tilted to the upside in the U.S.,” they added.While Trump’s recent remarks have many breathing a sigh of relief as the president didn’t come out swinging on day one in office, “President Trump made clear during his campaign that tariffs were coming, and he has spent his first week issuing a number of statements about upcoming tariffs and other trade restrictions (and taxes, etc.),” the strategist said. Despite MRB Partner’s base-case scenario that U.S. tariffs will be applied “selectively and moderately,” trade restrictions are likely to lead to higher inflation just as they did during the first Trump administration.While the economic picture for the U.S. in the 2025 is far more comforting than that of 2017 –when Trump first took office and the U.S. was still struggling with a negative output gap, which was deflationary– the inflationary backdrop is more acute increasing the risk the spillover from higher tariffs to inflation will be greater this time.   “The U.S. economy is more inflationary and wage pressures much greater than in the late-2010s, so the spillover into other areas of the CPI basket will be greater this time,” MRB said. The big worry, according to the strategists, is that U.S. and global financial markets are “not priced for such an outcome, and not by a long shot.””U.S. asset prices and the dollar are both discounting a good economic outcome, yet such growth is somehow not expected to cause higher inflation,” they said. Should this outcome become a reality and Treasury yields break to the upside, then investors will need to de-risk, they added. More