Julius Baer Predicts Mixed Global Outlook with Impact of Trump Policies

Julius Baer Gives Global Economic Outlook Amid Trump Policies

On November 29, 2024, Julius Baer’s Chief Economist David Kohl visited Guernsey to share insights on the global economic landscape at the biannual market outlook event. The audience gathered to hear forecasts for the United States, Europe, and China from the renowned economist.

Mr. Kohl kicked off the event with a question – what would the economic outlook for 2025 look like without politics? He dove into a comprehensive analysis of the U.S. economy, highlighting robust growth supported by healthy balance sheets in households and corporations. Even with more accommodating monetary policies, the U.S. economy is expected to thrive thanks to central banks reducing borrowing costs to fuel economic expansion.

The audience learned that the Trump administration’s proposed tariffs on Canada, Mexico, and China are seen as negotiation tactics rather than revenue generators. This heightened trade policy uncertainty affects private investments, specifically in Europe, causing delays and indecision. In the short term, the U.S. dollar is expected to strengthen due to nominal growth and looser fiscal policies post-election. However, concerns around long-term risks like budget and current account deficits loom over the country’s economic stability.

On the European front, Mr. Kohl painted a less optimistic picture, with Germany posing challenges to the Eurozone’s growth. Rising labor and energy costs, along with policy uncertainties, are key obstacles. Despite these challenges, Germany’s resilient production processes give exporters an advantage in maintaining pricing power. Headwinds from domestic policies and trade uncertainties continue to pressure Europe’s economic outlook.

China, on the other hand, has reduced its trade reliance on the U.S., making strategic investments abroad to navigate challenges at home. However, domestic issues like private debt and real estate bubbles hinder growth, limiting the effectiveness of monetary policy adjustments. Despite these hurdles, China’s focus on global production capacities demonstrates a long-term strategy to adapt to economic shifts.

At the event, Craig Allen, Head of Investment Management at Julius Baer Guernsey, emphasized the importance of staying invested despite market fluctuations. He advised against holding onto cash long-term, citing recent challenges faced by global portfolios in 2022. Mr. Allen also highlighted a shift in the U.S. market in mid-2024, with smaller stocks outperforming mega-cap tech companies, signaling a more balanced investment landscape.

In conclusion, Mr. Allen encouraged diversification in portfolios, balancing exposure between U.S. and international markets, and large-cap with small-cap equities for better long-term returns. He noted the extreme overvaluation of U.S. large-cap stocks and suggested a shift towards smaller equities for higher potential returns.

Overall, the audience at Julius Baer’s event gained valuable insights into the global economic outlook, offering a well-rounded perspective on the financial landscape amidst changing policies and market dynamics.