Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Malaysia is planning to tighten regulations on semiconductors as it comes under US pressure to stem the illicit flow to China of chips crucial to the development of artificial intelligence.The country’s trade minister said Washington was demanding Malaysia closely track the movement of high-end Nvidia chips that enter the country over suspicions that many are ending up in China, in violation of US export rules.He added that he had formed a task force with digital minister Gobind Singh Deo to tighten regulations around Malaysia’s burgeoning data centres industry, which relies on chips from industry leader Nvidia.“[The US is] asking us to make sure that we monitor every shipment that comes to Malaysia when it involves Nvidia chips,” Zafrul Aziz told the Financial Times.“They want us to make sure that servers end up in the data centres that they’re supposed to and not suddenly move to another ship.”The US has imposed export controls on advanced semiconductors and related equipment in an effort to obstruct China’s development of next-generation technologies, including AI, which may have military applications. Anxiety in the region over the illicit chip trade has escalated in recent weeks, after Singapore charged three men in a $390mn fraud case related to the suspected sale of Nvidia chips via Malaysia to China.In the final days of Joe Biden’s presidency, the US introduced export controls that created a three-tier licensing system for AI chips used in data centres, such as Nvidia’s powerful graphics processing units. The system was aimed at hindering Chinese companies’ efforts to circumvent US restrictions by accessing the chips via third countries.Nvidia’s Singapore office accounts for nearly a quarter of its global sales, raising suspicions in Washington that some of the chips are leaking into China. The company has said almost all of these sales constitute invoicing of international companies through Singapore and very few chips pass through the city-state.Three weeks ago, Singaporean police arrested nine people — three of whom were charged — following raids on 22 locations over suspicion of fraudulent sales of servers containing Nvidia chips.Prosecutors said the fraudulent sales included Dell and Supermicro servers. Singapore has requested assistance from the US and Malaysia in investigating the movements of the servers.Zafrul said US authorities believed the Nvidia chips ended up in China after passing through Malaysia. But he said the investigation had turned up no evidence that the chips arrived at the Malaysian data centre to which they were purportedly sold.Malaysia has become one of the fastest-growing markets for data centre development, much of it concentrated in the southern state of Johor.The state has drawn in more than $25bn of investment from the likes of Nvidia, Microsoft and TikTok owner ByteDance in the past 18 months to build data centres, and recently agreed to form a special economic zone with Singapore.Zafrul emphasised the difficulty of tracking semiconductors through global supply chains, which involve chipmakers, suppliers and buyers as well as companies involved in manufacturing and distributing servers. “The US is also putting a lot of pressure on their own companies to be responsible for making sure they arrive at their rightful destination,” he said. “Everybody’s been asked to play a role throughout the supply chain.”He added: “Enforcement might sound easy, but it’s not.”Additional reporting by Mure Dickie in LondonVideo: Nvidia’s rise in the age of AI | FT Film More

This article is an on-site version of our The Week Ahead newsletter. Subscribers can sign up here to get the newsletter delivered every Sunday. Explore all of our newsletters hereHello and welcome to the working week. Or in the case of Britain at the moment, weak and not really working.The headline event over the next seven days for my colleagues on the UK news and economics desks — as well as much of the London newsroom — will be the Spring Statement to the Westminster parliament by chancellor Rachel Reeves. The first thing to watch for is the revision to forecasts for growth, or rather the lack of growth, by the Office for Budget Responsibility. They will be down because the GDP estimates have been worse than expected by the OBR when it published its forecasts for the Budget last year. The OBR has to downgrade this year’s growth figure from 2 per cent to 1.3 per cent even if it keeps its view of the rest of 2025 unchanged. My colleague Chris Giles believes it’s more likely that the OBR halves the figure to about 1 per cent. The main change in the forecast will be higher than expected interest rates, increasing the cost of government debt service by about £10bn a year, or 0.3 per cent of GDP. That is sufficient to wipe out the headroom Reeves had in October against her main fiscal rule to balance day-to-day public spending with taxation by 2029-30. The net result of all this, given the chancellor’s commitment to stability as well as growth, is that Reeves will balance the books with the cuts to welfare announced last week along with slightly lower departmental spending over the rest of the parliament than previously planned. Don’t expect any tax changes — those will have to wait for this autumn’s Budget speech. The Treasury’s ambition this week is to be boring. Reeves’ speech is due to kick off at 12:30pm local time on Wednesday.I need to highlight the less easy to diarise — but arguably most important — event of the next seven days, namely the talks between the US and Russia about the war in Ukraine, hosted by Saudi Arabia. Financial Times subscribers can hear analysis from FT experts on developments on the battlefield, in European capitals and US foreign policy under US President Donald Trump with an exclusive webinar this Thursday between 1pm and 2pm GMT. Register here. In other news, Wednesday is the 25th anniversary of Vladimir Putin being elected president. Just saying.Germany’s new grand coalition will take its place in the 21st Bundestag on Tuesday as the country’s new parliament convenes after last month’s election. It will look a lot different: newly appointed Chancellor Friedrich Merz presides over a coalition of his Christian Democratic Union with the Social Democratic party, but the far-right Alternative for Germany and far-left Die Linke will together hold more than a third of the seats in the new Bundestag.In Asia, there will be anticipation about further details on China’s plan to stimulate its domestic economy. The Boao Forum for Asia (BFA) begins its four-day annual conference on Tuesday in China, often seen as the region’s answer to the World Economic Forum meetings in Davos.In a relatively thin week for earnings announcements, British retailer Next will be among the standout reports. It is expected to reveal a 10 per cent increase in annual profit, making in excess of £1bn for the first time, when it publishes numbers on Thursday. Attention will focus on the company’s perspective on UK consumer confidence (previously pessimistic) and the impact of the national insurance increase, about to come into force, on hiring decisions.The next seven days brings the regular run of end of month surveys: the comparison of G7 economies through the flash purchasing managers’ index reports, Germany’s Ifo and US Consumer Confidence surveys. However, there are also significant data reports: personal income and durable goods orders from the US, inflation, retail sales and trade data from the UK, French, Spanish and Japanese inflation numbers, German unemployment figures and Australia’s monthly GDP estimate. More details on these and other items below. One more thing . . . Europe’s clocks spring forward on Sunday. Do you have better things to do with your time? Email me at [email protected], or, if you are reading this from your inbox, hit reply.And finally a belated thank you to all those who suggested ideas for a coming of age birthday treat for my youngest child. Keeping it simple was the best advice, so we took him to see super stylish spy flick Black Bag, which (unbeknown to me) includes a cameo by the FT’s London headquarters as the entrance to the secret service organisation’s base. I throughly recommend going to see the film — in line with the FT’s review — but please refrain from shouting out: “That’s Bracken House!” This location insight will not endear you either to your fellow film-goers or your teenage son.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayBank of England governor Andrew Bailey is guest speaker for the University of Leicester Chancellor’s Distinguished Lecture, talking on growth in the UK economyHargreaves Lansdown’s acquisition by a consortium comprising CVC Advisers, Nordic Capital XI Delta, SCSP and Platinum Ivy is expected to become effectiveEurozone, France, Germany, India, Japan, UK, US: S&P Global/HCOB/HSBC flash services and manufacturing purchasing managers’ index (PMI) dataResults: Science Group FY, Social Housing Reit FYTuesdayHSBC Global Investment Summit, hosted by the bank’s chair Mark Tucker, in Hong Kong. Speakers at the two-day event include Hong Kong financial secretary Paul Chan Mo-po and Hong Kong chief executive John LeeShell publishes its annual report, including details of chief executive Wael Sawan’s pay packageGermany: ifo Business Climate IndexJapan: minutes of the last monetary policy meetingSpain: February producer price index (PPI) inflation rate dataUS: Conference Board’s March consumer confidence indexResults: AG Barr FY, Ashtead Technology FY, Bellway HY, Fevertree Drinks FY, Heidelberg Materials FY, Henry Boot FY, IP Group FY, Kingfisher FY, McCormick & Company Q1, Regional Reit FY, Smiths Group HY, Tullow Oil FYWednesdayAustralia: February consumer price index (CPI) inflation rate dataFrance: INSEE consumer confidence surveyJapan: February services PPI inflation rate dataUK: February CPI and PPI inflation rate data. Also, UK House Price IndexResults: Cintas Q3, Commerzbank FY, Dollar Tree Q4, Evoke FY, Exor FY, PayChex Q3, Porsche FY, Vistry Group FYThursdayEU: European Central Bank General Council meetingUK: Bank of England February capital issuance figuresUS: revised Q4 GDP estimate and weekly export sales figuresResults: M&C Saatchi FY, H&M Q1, James Halstead HY, Lululemon Athletica Q4, Next FY FridayBoohoo shareholders vote on name change to Debenhams GroupCanada: January GDP estimateFrance: February PPI and March CPI inflation rate dataGermany: February labour market statistics. Plus, March GfK consumer climate surveyUK: revised Q4 GDP estimate, plus February retail sales figures for Great Britain US: February state employment figures. Also, February personal income dataWorld eventsFinally, here is a rundown of other events and milestones this week. MondayCanada: parliament resumes business, for the first time under new prime minister Mark CarneySouth-east Asia: the Asian Development Bank publishes its Asian Economic Integration reportJapan: Brazilian President Luiz Inácio Lula da Silva arrives in Tokyo for a state visit, including meetings with the Emperor and Prime Minister Shigeru IshibaTuesdayAustralia: Budget Night, when treasurer Jim Chalmers presents the annual federal fiscal statement to the parliament in Canberra at 7:30pm local time. The Labor government, preparing for an election, faces pressure to boost cost of living spending while not adding anything that might fuel inflation, a tightrope walkChina: Boao Forum for Asia beginsGermany: 21st Bundestag, the federal parliament of Germany, meets for its inaugural session after the February 23 electionsGreece: Independence DayUK: Financial Conduct Authority chair Ashley Alder and chief executive Nikhil Rathi appear before the Treasury select committee to answer questions on the regulator’s workWednesdayBangladesh: Independence DayGermany: the country’s constitutional court decides whether taxpayers must continue to shoulder a so-called solidarity tax surcharge introduced after the German reunification three decades ago to support poorer eastern states. If the court sides with plaintiffs, federal tax revenues annually worth about €12bn could be in jeopardy, potentially putting further strains on state coffersRussia: 25th anniversary of Vladimir Putin being elected presidentUK: Chancellor Rachel Reeves presents her Spring Statement to parliament, while the Office for Budget Responsibility publishes its spring economic and fiscal forecastThursdayMyanmar: Armed Forces Day, this year commemorating 80 years since conflict with the Japanese army in the second world war. Myanmar has been in crisis since the army chief Min Aung Hlaing led a coup and arrested members of an elected government led by Nobel laureate Aung San Suu Kyi in February 2021UK: Tom Hayes, a former Citigroup and UBS trader, and the first person in the world to be found guilty by a jury for conspiring to rig the London Interbank Offered Rate, is due to hear the verdict of his appeal against his conviction at the Supreme Court. His appeal will be heard alongside that of former Barclays trader Carlo PalomboFridayUK: Reform UK party stages a mass rally in the Utilita Arena, Birmingham — billed as its “biggest event yet” — to launch its campaign for local elections on May 1, as well as building momentum for the upcoming by-election in RuncornSaturdayJapan: Prime Minister Shigeru Ishiba will join US secretary of defence Pete Hegseth and Gen Nakatani, the Japanese defence minister, on the Pacific island of Iwo Jima for a joint memorial service to commemorate the 1945 battle that involved some of the fiercest fighting of the second world war and the location for the famous US marine flag raising image. Hegseth is likely to use the occasion to lobby Japan to increase its defence spendingSundayEid al-Fitr (End of Ramadan)EU: European daylight savings time beginsUK: British Summer Time begins. 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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe world looks different from the North Pole. Most maps chart the planet from east to west. But look at the world from the top down, and you suddenly see America’s relative position anew. Russia dominates the region. Greenland suddenly seems important, as does Canada. China, a “near-Arctic” nation, is a bit too close for comfort. The US, by comparison, is small. Alaska, its biggest state by territory, is a fraction of the view.That world view is at the centre of the Trump administration’s new goal to “make shipbuilding great again”, courtesy of an upcoming executive order (which may drop as early as this week). This lays out the most ambitious industrial strategy in the shipbuilding sector since the Americans turned out 2,710 “liberty ships” in the space of four years during the second world war.It will also be a topic at Monday’s Office of the US Trade Representative hearings on proposed remedies to combat China’s ringfencing of the global maritime, logistics and shipbuilding sectors.In the 19th century, the British and Russian empires battled for primacy in central Asia, in a multi-decade struggle that became known as the “Great Game”. The territorial lines drawn across Persia, Afghanistan, Tibet and India in this period defined the geopolitics and economics of the next century.Today, there is a new Great Game being played — not in central Asia, nor even in modern hot zones such as Ukraine, Gaza or the South China Sea, but rather in the frigid waters of the Arctic. Dominance in this region will be crucial to strategic control of the entire western hemisphere, which is a goal of the Trump administration.BlackRock’s agreement to buy ports in the Panama Canal from Hong Kong billionaire Li Ka-shing goes some way towards that goal. This comes at a time when military experts say risk is as high as it has been in decades thanks to increased piracy, Russia’s invasion of Ukraine and the Black Sea, underwater cable snapping in the Baltic, Houthi rebel attacks in the Red Sea and more Chinese military activity in the Pacific.But the Arctic, where the Chinese and Russians conducted naval drills together last year, is one of the few places where new sea routes are actually opening (due to climate change). A key element of the new Great Game will be building US maritime capacity to exploit mineral resources and lanes of commerce, lay new fibre optic communication cables that can be better policed by America, and create more security presence in the region.Icebreakers are top of the list for Donald Trump, who came up with the plan to build polar cutters with the Finns and Canadians at the end of his first term (a deal that was inked by the Biden administration, proving maritime and Arctic security are a rare bipartisan point of agreement). The US hasn’t built one in over a quarter of a century, but a White House source tells me Trump would like to see this done by the end of his second term.The US also wants to control more of its own commercial shipping. America today has 185 ocean-going commercial vessels. China has 5,500. In theory, Beijing could turn off the American economy by choking off access to that shipping fleet and blockading the most important supply chains through the South China Sea. Given that it is from commercial fleets that the US military gets most of its supplies, even in wartime, it could also incapacitate any future American war effort.A key pillar of the Trump strategy will be to bring together the commercial and military sides of shipbuilding. “This new office aims to reform procurement, boost demand and remove barriers to US shipbuilders’ competitiveness — giving them the confidence to invest in the industry’s long-term future,” says Ian Bennitt, special assistant to the president and senior director for maritime and industrial capacity at the National Security Council. This is a big deal. It is very much the industrial strategy that put the Chinese on top in this domain and so many other industries, and it also represents a radical departure from the Reagan approach of decoupling the two areas, as part of a larger decrease in public subsidy of industry.By contrast, many people within the Trump administration — from national security adviser Mike Waltz to secretary of state Marco Rubio, to White House economic adviser Peter Navarro and USTR Jamieson Greer — are pushing ships as the new chips, to paraphrase former Biden security adviser Jake Sullivan, who praised the Trump plan.A leaked draft of the executive order shows the administration is planning to use a variety of carrots and sticks, from port fees on Chinese vessels, to a Maritime Security Trust fund (utilising tax credits, grants and loans for building and workforce training) to trade sanctions to bolster the industry. That will inevitably require working with allies such as South Korea (Hanwha has bought the Philadelphia shipyard), Japan, Finland, Canada and others.  Can Trump stay the course here? He’s already told the Canadians he won’t let them use US icebreakers until they become the 51st state of the union, though sources tell me that the ICE Pact work with Canada and Finland is continuing, unaffected by trade issues. America’s maritime capacity has atrophied to such an extent that alliances will be crucial to rebuilding it. This Great Game can’t be played [email protected]      More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Belatedly but determinedly, Europe is taking up the burden of its own defence. Part of this will be to spend more on weapons. As big a part will be to overcome the parochialism that has left arms procurement across the region uncoordinated and inefficient. That parochialism was made a lot worse by Britain leaving the EU. Goodwill and political footwork are helping to contain the impact of Brexit on the joint European security effort. The British, in particular, are keen to keep a common interest in defence collaboration uncontaminated by differences in other policy areas. The risks of that are low. The dismay registered at the EU’s decision to reserve the bloc’s common funding for its members and closest associates will dissipate if the UK decides to enter a defence and security pact.But pooling some defence spending will not change the UK’s self-exile from European supply chains that its hard Brexit entailed. Trade frictions between the EU and UK are, admittedly, not the greatest obstacle to Europe’s rearmament. But they are not irrelevant.Even within the EU itself, the European Commission identifies what are essentially trade frictions as obstacles to fully efficient defence procurement. Brussels lists insufficient recognition of product certifications, excessive red tape on military mobility, non-harmonised customs procedures and overregulation of intra-EU transfers of defence-related products.These and other frictions are much more severe vis-à-vis the UK, whose chosen form of Brexit puts it demonstratively outside any EU rulemaking or adjudication. The resulting barriers — for trade, people, data and capital — hamper exchange in all economic sectors, defence included. Finding a way to lower those threatening Europe’s common security is a worthwhile cause.What would it mean to create a frictionless market specific to the defence industry? Its goal would be, for activities within the sector, that companies could ignore national location and the associated costs of diverging rules or crossing borders. Frictions must be minimised not just for physical goods but for the delivery of services, flow of capital and movement of specialised workers.A sectoral version, in other words, of the EU’s internal or single market (in its ideal version, not its present incomplete form) and customs union. To avoid triggering the UK government’s neuralgic attitude to those terms, it is best to call it a “common market” for defence. A pan-European defence-industrial common market would face practical and political challenges. Practical ones include how to delineate the sector. This would be more complex than the exclusion of the primary sectors from the European Economic Area agreement, since defence work includes much more than goods only. On the other hand, countries already treat the defence sector as special — with regard to licensing requirements, for example — so there is something to build on.Another issue would be how to remove frictions at the border. Inspiration could be taken from the creative solutions in Northern Ireland. Special transport lanes could be accessible for pre-certified shipments from defence contractors, for example. Passport stamps could authorise non-EU/EEA nationals working in defence to enjoy greater professional mobility rights. As for capital, service and data exchanges, these are regulated behind rather than on the border, so it is largely a matter of adapting laws and putting resources behind policing any abuse.It’s the politics that would be the greater hurdle. There is no way around such a scheme having to run on EU legislation, including European court jurisdiction (again, Northern Ireland offers lessons). That has been anathema for successive British governments — although Labour has opened the door a crack with its product regulation and metrology legislation and its openness to a veterinary agreement.The EU, for its part, would have to abandon the dogma of “the indivisibility of the four freedoms”, according to which frictionless economic exchange with it is an all-or-nothing affair. This was always slightly hypocritical, as shown by the EEA’s exclusion of agriculture and fish. More recently, the EU’s new agreement with Switzerland shows that it can give partial frictionless access to partners willing to align dynamically with the bloc’s relevant rules.So it should be possible to find a meeting of minds. If the greater good of common security cannot justify concessions from both sides, what could? Even British Eurosceptics and continental Britain-bashers should acknowledge the overarching advantage of smooth Europe-wide weaponry supply chains — an advantage exceeded only by the greater trust and unity such a common market could build over time. [email protected] More

Investors are bracing for a busy day on Wednesday in the UK with the release of the Chancellor’s Spring Statement and February inflation data. Both could influence investors views on monetary policy.The Office for Budget Responsibility is expected to cut its GDP growth forecast for this year from the 2 per cent forecast in October to closer to the 1 per cent forecast by economists polled by Reuters. Chancellor Rachel Reeves has said she will not raise taxes. However she is expected to announce further cuts to public spending, following a £5bn reduction on welfare.“Britain’s public finances are operating under increasingly fine margins and Chancellor Rachel Reeves faces tough spending decisions at the 26 March Spring Statement, amid rising debt interest cost,” said James Smith, an economist at the bank ING.Earlier on Wednesday, an ONS data release is expected to show that annual consumer price inflation has marginally declined to 2.9 per cent in February from 3 per cent in January, according to economists polled by Reuters.Economists anticipate higher food price inflation being offset by weaker price pressure in clothing.In February, the Bank of England forecast that the inflation data would slow to 2.8 per cent. Still, Philip Shaw, economist at Investec said he did “not expect an overshoot of this size to jeopardise a further cut in rates in May”. The BoE left interest rates unchanged at 4.5 per cent this week, saying that inflation should rise to 3.7 per cent by this summer. Domestic cost pressures, the BoE said, had boosted goods inflation despite weaker wholesale energy costs.“The committee will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy,” according to the BoE minutes. Valentina RomeiWill signs of growth finally emerge for the Eurozone?Investors hoping for renewed Eurozone growth will be looking for clues in business activity survey data next week. The S&P Global purchasing managers’ index has hovered around a neutral reading for several months, indicating stagnation. Economists polled by Reuters expect only a slight expansion to 50.5 for March from 50.2 last month. A reading above 50 indicates expansion.“Unless the PMI data shows a substantial move in either direction, I don’t think it will change what the [European Central Bank] wants to do,” said Athanasios Vamvakidis, Bank of America’s Head of G10 Foreign Exchange strategy. Most expect the ECB to hold interest rates steady in April after its quarter-point cut earlier this month.  “At this point, the focus is more on inflation, and also on tariff risks,” added Vamvakidis. US President Donald Trump has pledged to introduce new tariffs on the Eurozone in the coming weeks. This trade tension, as well as the continuing war in Ukraine, has driven the recent pessimism about the bloc’s growth prospects. This has eased somewhat after the German parliament passed a historic €1tn fiscal stimulus package this week. Economists at RBC Capital Markets predict a positive “sentiment shift” thanks to the German fiscal measures. They expect an above consensus figure of 51 this month, but noted they will be looking out for a “burst in new export orders from the US” ahead of looming tariff threats. Emily HerbertHow is corporate America dealing with America’s aggressive trade policies?Intensifying fears about slowing growth and rising inflation in the world’s biggest economy have punctured a shortlived post-election Wall Street rally.With sentiment surveys already pointing to increasing pessimism among consumers, investors will scrutinise upcoming gauges of business activity for clues about how well corporate America is handling Donald Trump’s aggressive trade policies and an increasingly uncertain economic backdrop.S&P’s purchasing managers’ index for manufacturing is expected to give a reading of 52.2 for March, according to a preliminary consensus estimate from FactSet — slightly below the previous month’s figure of 52.7.At the same time, S&P’s services PMI due on Monday is expected at 50.1, down from 51. While any reading above 50 signals expansion, such a figure would teeter on the edge between growth and contraction.Signs of greater weakness in either survey could spark a deepening of the sell-off in US stocks, which has already sent the benchmark S&P 500 well into “correction” territory.The Federal Reserve this week lowered its growth forecast and lifted its inflation outlook, while keeping interest rates steady, intensifying fears about ‘stagflation’ — a toxic combination of stagnating economic growth and rising prices.Economists at Deutsche Bank say that their “long-standing view” is for the Fed to keep interest rates on hold this year. Still, they add, “a realisation of downside risks to the economy, in the absence of a material increase in inflation expectations, could require the Fed to reduce rates in 2025.”“Like the Fed, we hope to get a better sense of the details around policies before deciding whether an adjustment is needed,” Deutsche says, but “the data and financial markets might not allow us (or the Fed) to be so patient.” Harriet Clarfelt More

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 [email protected] 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