The Second Trump Presidency: A New Era of Uncertainty

The Second Trump Presidency: A New Era of Uncertainty - Zomi Wealth
The return of Donald Trump to the White House in 2025 has cast a shadow over the global economy. As governments and businesses brace for potential policy shifts, the International Monetary Fund (IMF) predicts global growth will remain at a “stable yet underwhelming” 3.2%. But the real story lies in how Trump’s policies could reshape inflation, trade, and economic stability worldwide.

The Battle Against Inflation and Interest Rates

Central banks around the world are navigating the “last mile” of their fight against inflation. While price increases have slowed significantly since the Covid-19 pandemic and the war in Ukraine, inflation remains stubbornly above targets in major economies:
• US: 2.7% in November.
• Eurozone: 2.2%.
• UK: 2.6%.
In the US, Federal Reserve chair Jerome Powell has signalled a more cautious approach to further interest rate cuts, despite a third consecutive reduction before Christmas. While this is a relief for American borrowers, Powell’s stance has unsettled stock markets, as investors worry that inflation will remain persistent longer than anticipated.
Wage inflation is another challenge. Talent shortages and rising wage demands are putting upward pressure on prices, particularly in Western economies. Strong wage growth in the US and Europe, often exceeding 4%, complicates efforts to bring inflation back to target levels.

Trump’s Trade Policies: Protectionism and Global Risks

One of the biggest uncertainties for 2025 is how Trump’s trade policies will impact global growth. His threats to impose new tariffs on China, Canada, and Mexico have raised concerns about disruptions to supply chains, higher prices, and slower economic growth.
1. Impact on North America: Maurice Obstfeld, former IMF chief economist, warns that tariffs could have a devastating effect on industries like car manufacturing, which rely on integrated supply chains across the US, Mexico, and Canada. Disruptions could push up costs, reduce demand, and hurt profits.
2. China Under Pressure:
China, already grappling with domestic challenges like weak consumer spending and a fragile property sector, faces additional risks if US tariffs curb demand for its exports. The World Bank has slightly upgraded China’s growth forecast to 4.5% for 2025, but Beijing will need to address systemic issues to maintain stability.
3. European Union Concerns: The EU is particularly worried about the inflationary impact of Trump’s protectionist measures. European Central Bank President Christine Lagarde has warned that such policies could harm growth while driving up prices, particularly in countries like Germany and France, where economic momentum remains fragile.

Labour Markets Reflect Economic Dynamism

Global labour markets have slowed, reflecting a lack of confidence in economic prospects. As wage inflation persists, businesses are passing higher costs onto consumers, further contributing to inflationary pressures.
Sander van ’t Noordende, CEO of recruitment giant Randstad, notes that wage demands and talent shortages are key factors driving costs:
• In the US, wage inflation remains around 4%.
• Western Europe sees even stronger wage growth in some sectors.
Economic growth is critical for reversing this trend. A thriving economy creates new opportunities, encourages hiring, and injects dynamism into the job market.

The Road Ahead for the Global Economy

The economic outlook for 2025 hinges heavily on the policies Trump implements when he returns to the White House on 20 January. His plans for tax cuts and deregulation could support US growth in the short term but may exacerbate challenges for trading partners and global markets.
Luis Oganes, head of global macro research at JP Morgan, highlights the risk of US exceptionalism at the expense of the rest of the world. Protectionist policies and tariffs could hurt global trade and economic growth while complicating efforts to reduce inflation.

Key Risks to Watch in 2025:

Rising Prices:
Protectionist policies could increase the cost of goods and services, impacting businesses and consumers alike.
Investment Uncertainty:
Global trade disruptions may reduce opportunities for international investments.
Inflation Challenges:
Wage inflation and higher tariffs may further complicate efforts to reduce inflation in key economies.

The Key Question: Can Growth Offset Inflation?

While many economies are hopeful for stable growth in 2025, challenges like protectionism, wage inflation, and geopolitical uncertainty threaten to derail progress. For businesses and consumers, the year ahead may bring higher prices, reduced trade, and limited investment opportunities.
As the world navigates these complexities, all eyes will be on Trump’s policy agenda and its ripple effects across the global economy. From trade to tariffs, his administration’s decisions could shape the economic landscape for years to come.
For now, the world is holding its breath, hoping for policies that promote stability rather than disruption.

What Can You Do?

As global uncertainty rises, individuals and businesses can take steps to prepare for potential economic challenges:
• Diversify your investments to reduce exposure to inflation and geopolitical risks.
• Monitor trade and tariff developments that could affect your industry or supply chains.
• Consult a financial adviser to review your portfolio and ensure you’re prepared for potential market volatility.
This blog includes forward-looking statements based on current trends and expert opinions. These predictions are speculative and subject to change. There is no guarantee that the outcomes discussed will materialise. Readers should consult financial or legal advisers for personalised guidance.

Sources:

https://www.bbc.com/news/articles/c5y41qg57pno
https://www.mcknights.com/news/trump-presidency-brings-mixed-bag-of-regulatory-wins-payment-fears-mcknights-2025-outlook-part-3/
https://davispolk.com/insights/client-update/what-expect-second-trump-presidency-2025-and-beyond
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