Consumers take fright at US policy trajectory, and other key economic news to know
Top economy stories: continuing fallout from policy upheaval in the US; global growth expected to soften; and more
Image: REUTERS/Jeenah Moon
- This regular roundup brings you essential news and updates on the global economy from the World Economic Forum’s Head of Economic Growth and Transformation.
- Top stories: continuing fallout from policy upheaval in the US; global growth expected to soften; fiscal policy in Germany set for an overhaul; and uncertainty reaches record levels.
1. Uncertainty starts to take a toll
The rapid changes in US policy that have been announced since the new administration took office in January have begun to take a toll on consumers, according to preliminary survey results for March.
The University of Michigan’s Index of Consumer Sentiment stood at 57.9 in the latest release, a slump of 22% from December 2024. The forward-looking consumer expectations component of the index was down even more sharply, by 26% to 54.2.
This follows weeks of further dramatic developments, including the on-again-off-again imposition of extensive tariffs, a sharp deterioration in the stability of transatlantic alliance, and a narrowly avoided government shutdown.
Equity markets had been widely expected to be a clear beneficiary of a business-friendly stance under the new administration, but there has been volatility here too: on 13 March, the S&P500 index moved into correction territory (defined as a drop of 10% or more from the most recent high) before recovering slightly after the government shutdown was averted.
A slip in 10-year Treasury yields from 4.8% in mid-January to 4.3% in mid-March is consistent with rising investor nervousness. Such a move on yields would often be accompanied by an increase in the value of the dollar as a safe-haven currency. Instead, a softening of the dollar in the first half of March suggests there may be deeper worries about the outlook.
2. Germany prepares for a radical fiscal overhaul
Developments in the US have focused attention in European capitals on the need for greater self-sufficiency, and for corresponding shifts in fiscal policy. This has been most pronounced in Germany, where on 4 March the incoming Chancellor, Friedrich Merz, announced a dramatic departure from the country’s decades-long prioritization of fiscal prudence.
Under the new plans, defence spending above 1% of GDP will be exempted from Germany’s debt brake, which prohibits structural deficits above 0.35% of GDP. An infrastructure fund of €500 billion was also announced, and the incoming government has signalled that it will look for a loosening of the EU’s budgetary rules.
On the same day as Germany’s overhaul was announced, the European Commission also announced plans to create fiscal space of up to €800bn for defence spending. Of this, €150bn would come through new Commission borrowing that would be made available to member states, while €650bn would come from exempting countries’ increased defence expenditures from “excessive deficit” penalties.
On 6 March, the European Central Bank cut its policy interest rates by 25 basis points. This signals an intention to bolster economic activity across the eurozone, even if the simultaneous loosening of monetary and fiscal policy could risk stoking inflationary pressures. “The level of uncertainty we are facing is exceptionally high,” ECB President Christine Lagarde said in prepared remarks. “We will always do whatever is necessary to deliver price stability.”
3. News in brief: Other recent global economic stories
- Prepare for global growth to “moderate,” according to the OECD, which revised estimates for both this year (expect 3.1% GDP growth instead of 3.3%) and 2026 (3% instead of 3.3%). A key concern is “further fragmentation of the global economy,” the OECD said, as well as lingering inflationary pressure in many countries.
- The latest global purchasing managers’ index (PMI) also pointed to softening growth; it stood at 51.5 in February, down from 51.8 in January. This is consistent with global growth around 2.2%, compared to an estimated 3% for the final quarter of 2024. Moreover, the latest PMI data does not suggest that an uptick is imminent: in February new business growth eased to its slowest since September.
- Economic policy uncertainty is reaching record levels, according to a series of indices based primarily on news coverage. In March, a rolling 7-day average of the uncertainty index for the US touched levels that had only previously been hit during the pandemic. The latest equivalent global data relates to January, by which time the previous pandemic-era peak had already been surpassed.
- China announced a growth target of 5% for 2025, unchanged from 2024 despite gathering headwinds, including a deepening trade war with the US. The likely need for increased government support was evident in projected deficit spending rising from 3% in 2024 to 4% this year. Meanwhile, the inflation target dropped from 3% to 2%, highlighting continuing deflationary pressures.
- In Japan, decades of deflationary pressures have recently given way to a challenging period of rising prices. The data points to an inflation rate of 4% in January, with core inflation at a 19-month high of 3.2%. On 14 March, labour unions secured a wage agreement of 5.5%, the biggest in 34 years. This followed a downward revision in government growth figures, largely on account of sluggish private consumption.
- Reductions in India’s goods and services tax (GST) are on the way, according to the finance minister. This follows the announcement of significant income-tax cuts in February’s budget. The central bank has projected that growth will slow from 8.2% in the 2023-24 fiscal year (which runs from April to March) to 6.4% in 2024-25, before edging back up to 6.7% in 2025-26.
- Ghana’s finance minister described his 2025 budget as a moment of “shock therapy” to help the country turn a corner and prepare for the significant debt-servicing challenges that lie ahead over the next few years. The budget aims to reduce deficit spending from 3.9% to 3.1% and to bring inflation down (it stood at 23.1% in February).
- The likely economic gains from gender inclusiveness are much bigger than standard models estimate, according to new research. The think tank Bruegel suggests that increasing female employment levels to match males can boost GDP by between 8% and 14% in an advanced economy. The paper also concludes that gender inclusiveness can have an “economically large” effect on total-factor productivity.