The negotiating capacity of the different countries and economic blocs will be key to the immediate future of the global economy
By Mario Catalá
The US economy is starting to show signs of deterioration even though lagging data (GDP, employment) continue to show strength. The manufacturing PMI for example was barely above the expansion zone at 50.2, but losing strength from the previous month (52.7). Retail sales also disappointed with a slight rise of 0.2% when the market was expecting 0.6%. The U.S. consumer is worried about the future of its economy and is beginning to be selective with purchases that do not correspond to essential goods, especially among the lower income population. Proof of this last point is the data provided by The Conference Board, which has been falling systematically since last November, when it peaked at 112.8, to 92.9 in March.
Inflation has taken a breather in the United States, publishing a CPI figure that fell two tenths to 2.4% overall, with core inflation falling to its lowest level since March 2021 (2.8%). This fact, together with the risk perceived by the markets after the imposition of tariffs by Trump, has led to the discounting of up to 4 interest rate cuts by the FED in 2025, which could bring official rates below 3.50%.
In stark contrast, in Europe, there has been more optimism in recent weeks, with manufacturing PMIs continuing to trend positive and trying to move out of the contraction zone, and a services PMI that improved slightly to 51 points. Quarterly GDP rose above expectations in December, leaving a year-on-year growth figure of 1.2% versus the 0.9% anticipated by the market. On the confidence level, things are clearly changing after Germany’s decision on its spending ceiling, with major investments in defense and infrastructure, which have improved growth forecasts, especially from 2026 onwards. This is shown by the confidence index of the ZEW institute, which reached 39.8 points, its highest value in eight months, and well above the previous figure of 24.2.
However, all of the above, in addition to being temporarily put on the back burner, may become obsolete in a short space of time in view of the latest events we are experiencing with the trade war initiated by the Trump administration from the United States. On April 5, a universal flat tariff of 10% came into force, which later (April 9) would be increased by a percentage that varies according to the region, 10% for the European Union, 21% for Switzerland, 34% for China and 26% for India, to give some examples.
Some countries showed their willingness to reach an agreement with the United States (with greater or lesser degree of protest), however China decided to counterattack with a similar measure, raising tariffs on goods entering the Asian country from American soil, and that after a couple of back and forth, have ended at 125%. Trump for his part has raised to 145% the tariff charged on Chinese products, and it seems that the Chinese authorities have decided to stop the escalation, arguing that the U.S. product has so little market in China, that raising it further will no longer have any practical effect. Along the way, and as an additional measure of pressure from Trump, he has “frozen” the application of the tariffs for 90 days for the rest of the countries that showed a conciliatory will.
The impact of these tariffs can have very serious consequences for the economy, both directly and indirectly. To begin with, the higher cost of the imported product implies a higher production cost, and in order for companies to maintain their profit margins, it is normal for them to pass it on (totally or partially) to the consumer. This significantly increases the risk of inflation in the short term, and also paralyzes investment by companies, which will logically wait until the current uncertainty is reduced before making any important decisions, since these investments can commit large amounts of capital for several years. There is also a dramatic increase in the volatility of the financial markets (both equity and fixed income), and there is also greater tension in relations between countries, which, if not resolved soon, could become entrenched in the future.
Regionally, emerging markets, especially in Asia, may be the hardest hit. If tariffs persist, it is estimated that growth in the region could be less than 4%, compared to the 5.1% seen in 2024. In contrast, Latin America could benefit, as its tariff is only 10% and a weaker USD would favor it. In Europe, the drop in growth could be between 0.3% and 0.5% due to tariffs. However, investments in defense and infrastructure (with Germany playing a leading role) could partially offset these declines.
The key to the future will lie in the bilateral negotiating capacity of the different countries and economic blocs. The faster the negotiation speed and the shorter the time it takes to apply tariffs, the lower the risk that the global economy will be seriously damaged. At Portocolom, at a strategic level, we prefer not to make very abrupt and hasty decisions in our portfolios, in this environment of high unpredictability in the decision making of the different countries. We will be very attentive to the bilateral agreements that are made, and once there is some stability, we will analyze which sectors and regions are the most appropriate to keep in the portfolios for the future.