Global scenario and forecasts for the second quarter of 2025

In this particular macroeconomic context, it is very difficult to make a medium-term assessment, as this one is intended to be, without the knowledge that the analysis should be updated with new information on a daily basis. In any case, we try to provide a minimum of clarity by presenting not only the most recent events, but also by giving a broader assessment of the U.S. and global economic situation.

Donald Trump's official inauguration into the White House in January 2025 profoundly disrupted the geopolitical and macroeconomic landscape, misaligning many of the expectations that had guided markets, businesses, and analysts in the preceding months. With the new political course, a phase of marked change in both U.S. foreign policy and economic strategy has begun.

Geopolitically, there is a cooling of relations with several European allies. The U.S. role in NATO is being challenged through ambiguous statements and demands for greater financial burdens from allies, fueling tensions and uncertainties on the Western security front. At the same time, the administration has intensified pressure for a resolution of the conflict in Ukraine, favoring a negotiating approach aimed at reducing U.S. military and financial commitments in the region.

In the economic sphere, a return to protectionism is already underway, marked by the start of a new phase of the trade war. The first tariff measures, announced against a range of products from China, Mexico and Europe, served as a prelude to a much broader intervention. These tariffs, initially used as negotiating leverage, anticipated a more aggressive and structured strategy that led to a real overhaul of the U.S. role within the global trading system.

Confirming this renewed protectionist approach, the tariff scenario for the second quarter appears to be heavily influenced by the Trump administration's assertive approach. After reviving the “fair and reciprocal trade” doctrine, the year opened with the introduction of 25 percent tariffs on Canada and Mexico (active since March 4), partially mitigated by the exemption for USMCA-certified goods. According to Barclays calculations, 56 percent of imports from these countries are currently subject to duties, with an average tariff incidence of 14 percent. April 2 marked a significant escalation in U.S. trade policy, with the implementation of a new round of ‘reciprocal’ tariffs targeting all major global trading partners. Among the most consequential measures – postponed for 90 days – are tariffs of 145% on China and 20% on the European Union, with a minimum 10% levy applied to smaller partners. These actions effectively encompass nearly all key trading nations, exempting only Mexico and Canada under USMCA provisions. The new tariffs also include compensatory mechanisms targeting non-tariff barriers, such as VAT regimes, subsidies, digital taxes, and regulatory constraints, practices deemed discriminatory by the administration, although the methodologies used to quantify these barriers appear to be based on less rigorous assessments. The scale of these measures represents a systemic shift: they transcend sectoral rebalancing, directly challenging the U.S. role as the cornerstone of global trade openness. A Goldman Sachs study estimates that, taking into account current exemptions and waivers, the average effective incidence of tariffs is around 18.8 percent, still much higher than the 2.5 percent calculated for 2024. According to a Goldman Sachs study, taking into account the current exemptions and waivers, the average effective tariff rate now stands at around 18.8%, a figure far higher than the 2.5% estimated for 2024. This radical shift risks profoundly reshaping the structure of global trade and demands close attention to both the nature and intensity of the responses from trading partners, many of whom have already begun retaliating with equally significant countermeasures.

Unless there is a reversal, an outcome still possible but one that would itself amplify uncertainty, this date will mark the onset of a trade war with profoundly negative repercussions.

Indeed, some of the tariffs introduced at the beginning of the year have already been suspended or modified in the context of broader negotiations. It is plausible that similar developments may recur. However, this persistent volatility fuels a climate of deep uncertainty, compounded by tangible risks of retaliation, inflationary pressures, and adverse spillovers for global growth. The lack of clarity regarding which sectors will be affected—and to what extent—combined with the possibility that measures may be hastily implemented then renegotiated or suspended, further erodes business confidence. This erosion of strategic foresight delays investment and production planning, particularly in industrial sectors most exposed to global trade dynamics. Initially, there was speculation that the administration might moderate its stance in response to severe market corrections—a hypothesized ‘Trump put’ akin to monetary policy backstops. However, recent official statements have categorically dismissed this possibility, reaffirming adherence to the announced strategy even at the cost of heightened near-term financial volatility. While Federal Reserve intervention could temporarily calm markets, it would fail to resolve the structural distortions created by these policies. Nevertheless, recent developments underscore the administration’s inability to disregard interest rate trajectories (and by extension, Treasury yields), given the acute sensitivity of debt servicing costs to borrowing rates—a constraint that inherently limits trade policy maximalism.

On the domestic front, the administration has embarked on a process of downsizing the federal apparatus, with targeted cuts in government spending in areas considered non-priority. Although this measure may support the goal of containing the deficit, it is likely to have negative short-term effects on the labor market, increasing the risk of a slowdown in employment and domestic demand.

The administration's fiscal strategy includes a significant tax cut, with the aim of stimulating economic growth and boosting private investment. However, this choice appears to be at odds with the stated goal of reducing the public deficit, particularly in the absence of credible spending containment measures. Part of the administration's plan is to cover the fiscal gap through revenues generated by business tariffs. Nonetheless, any fiscal action will require the green light from Congress, where political negotiations are poised to prove far more contentious than during the initial phase of the administration’s tenure. It remains to be seen whether growth will be able to offset the loss of tax revenues, or whether the deficit will instead widen further, in an already fragile and fragmented global context.

Despite the resilience shown by the U.S. business cycle in recent quarters, it is important to remember that the economy had already entered a phase of structural slowdown. Many of the positive signs observed in 2024 were underpinned by transitory factors , including high levels of public spending and stimulus measures that now risk being scaled back. In this context, the role of AI-related investments, which continue to be a driver of sectoral growth and innovation, remains crucial. However, this sector also seems to have moved beyond the initial explosive expansion phase, entering a more mature and selective phase of development.

In a scenario already characterized by signs of economic slowdown, the strong protectionist push promoted by the Trump administration—although it may offer a temporary improvement in the federal budget through increased tariff revenues—not only accelerates the breakdown of the free trade system on which the global economy is based but also risks worsening U.S. economic expectations. The unilateral approach adopted by the United States risks gradually isolating the country, triggering a series of counter-reactions that could undermine international trade, increase market volatility, and reduce global growth prospects.