The Organisation for Economic Co-operation and Development lowered its projections for 2025 and 2026 global gross domestic product growth.<\/p>\n\n\n\n
The Federal Reserve lowered its expectations for US growth and increased its projections for both inflation and unemployment for 2025.<\/p>\n\n\n\n
<\/a>German lawmakers passed a critical spending package that helps clear the way for 1 trillion euros in debt financing for defense and infrastructure spending.<\/p>\n\n\n\n <\/p>\n\n\n\n The Organisation for Economic Co-operation and Development (OECD) sees clouds forming for the global economy, Federal Reserve<\/a> expectations indicate an increased risk of stagflation in the US, and the Bank of England is taking a hawkish tone due to global uncertainty. Meanwhile, both Germany and China took steps toward greater fiscal stimulus that could improve sentiment for stocks. Here\u2019s what we learned last week, and what I\u2019m watching next.<\/p>\n\n\n\n Last Monday, the OECD came out with an interim report revising its economic forecasts. It recognizes that clouds are forming. While the global economy had remained resilient, recent activity indicators showed signs of a softening of global growth prospects, business and consumer sentiment had weakened in some countries, and indicators of economic policy uncertainty had risen markedly around the world. This has caused some revisions to growth projections.<\/p>\n\n\n\n In its report, the OECD:<\/p>\n\n\n\n The most important takeaway is that the OECD warned that significant changes had occurred in trade policies that, if continued, would hit global growth and cause a rise in inflation<\/a>. This is a valuable reminder that tariff wars<\/a> can hurt global economic growth, especially if they\u2019re prolonged. However, I think the far greater issue is dramatic cuts to government spending. We\u2019ll want to follow that closely.<\/p>\n\n\n\n Last Wednesday, the Federal Reserve (Fed) decided to keep rates unchanged, but that was expected. I was focused on what we would learn from the new \u201cdot plot\u201d (which charts Fed members\u2019 expectations for rates in the coming year and beyond) as well as the press conference.<\/p>\n\n\n\n The dot plot reflected lower expectations for growth and higher expectations for both inflation and unemployment. The obvious takeaway is that the risk of stagflation has increased. The Fed also expects a median of 50 basis points in rate cuts this year. This suggested to me a dovish tilt, as the Fed seems more concerned about negative impacts on growth than a resurgence in inflation.<\/p>\n\n\n\n That theme also came across in the press conference, as Chair Jay Powell seemed dismissive of a potential resurgence in inflation, using the now-famous term \u201ctransitory\u201d to describe it. (I agree that tariffs are unlikely to cause sustainable price increases so long as they are short-lived; recall that price increases stemming from tariffs in the first Trump administration were temporary.) In addition, Powell warned again that job creation has been low. So far, that\u2019s been matched by a relatively low level of job cuts, but if job cuts were to pick up, that would create an imbalance that would cause an increase in unemployment. Clearly, the Fed is more concerned about growth, in my opinion.<\/p>\n\n\n\n The Bank of England (BOE) also held rates steady when it met last week and seemed more hawkish than expected. The most important takeaway is that \u2014 spoiler alert \u2014 the BOE recognizes there has been a significant increase in uncertainty in the global economy.<\/p>\n\n\n\n While recognizing two-sided growth and inflation risks, the Bank of England \u2014 unlike the Fed \u2014 seems more concerned about the risk of a resurgence in inflation. This syncs with what we\u2019ve heard recently from BOE policymakers. In a speech several weeks ago, Deputy Mayor David Ramsden warned that there was an increased risk of inflation rising given increasing wage growth.2<\/a><\/sup><\/p>\n\n\n\n It\u2019s a difficult time to be a central banker, and so I empathize with the BOE. I appreciate its articulated willingness to be flexible about the path of monetary policy this year. I expect (likely) budget cuts in the UK will create some growth headwinds (and exert some downward pressure on inflation) that\u2019ll cause the BOE to be more worried about growth than an inflation resurgence, just like the Fed. This, in turn, will likely necessitate more monetary policy easing than is currently expected. Stay tuned.<\/p>\n\n\n\n German lawmakers passed a critical spending package last week, helping to clear the way for 1 trillion euros in debt financing for defense and infrastructure spending. This is a dramatic departure from years of budget austerity that have negatively impacted German economic growth. I don\u2019t think we can underestimate the impact of this in terms of a fiscal impulse and continued improving sentiment for European stocks.<\/p>\n\n\n\n China will see even more fiscal stimulus this year. It announced a \u201cSpecial Action Plan to Boost Consumption\u201d last week, which comes on the heels of better-than-expected economic data for January\u2013February. I\u2019m encouraged by the focus on increasing consumption by strengthening demand. We\u2019ll want to follow this multi-pronged effort closely.<\/p>\n\n\n\n As we head into a new week, we\u2019ll no doubt continue to see signs of the tectonic shift in fiscal stimulus around the globe. In my view, the US is on a dangerous path of continuing to aggressively cut fiscal spending while economies like Germany and China will be adding fiscal stimulus. (I\u2019ll, of course, be following signs of \u201cbrown shoots<\/a>\u201d and \u201cgreen shoots\u201d around the world.) As I mentioned before, to me this is far more important than ongoing tariff wars, as their impact is likely to be very temporary in nature, so long as they don\u2019t last for an extended period of time.<\/p>\n\n\n\n What\u2019s happening in the global economy has implications for various assets. The ongoing economic policy uncertainty and rising geopolitical risks have created increased demand for gold, which is likely to continue as these conditions show no signs of abating. There\u2019s an opportunity for stocks where there\u2019s potential for positive surprise, and that can come from greater fiscal stimulus. However, sovereign debt is likely to be punished in countries where government borrowing rises significantly \u2014 hence the rise in the 10-year German bund yield in the last several weeks. With the risk of a resurgence in inflation potentially slowing some central banks\u2019 path of easing, I believe bank loans could benefit handily.<\/p>\n\n\n\n Speaking of fiscal policy, I\u2019ll wait eagerly for the Spring Statement from UK Chancellor Rachel Reeves on March 26. It\u2019s unclear exactly what the plans are going forward \u2014 tax increases, government spending cuts, or a little of both \u2014 so this revelation will be important in assessing the state of fiscal policy in the UK. It may be creating headwinds for its economy if fiscal spending cuts are significant.<\/p>\n\n\n\n In terms of data, I\u2019ll be keen to see the US personal consumption expenditures (PCE) print; this is the Fed\u2019s preferred gauge of inflation and gives us a sense of whether consumers are right to expect inflation to rise significantly. Also important will be gauges of US consumer expectations regarding the economy and inflation (both the Conference Board and University of Michigan release this week), as well as eurozone consumer confidence. Finally, we will also get Purchasing Managers\u2019 Index<\/a> (PMI) readings for a number of major economies, which can offer helpful leading economic indicators.<\/p>\n\n\n\n —<\/p>\n\n\n\n Originally Posted on March 25, 2025<\/p>\n\n\n\nThe OECD lowers its projections for global growth<\/strong><\/h2>\n\n\n\n
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Fed expectations reflect concerns about economic growth<\/strong><\/h2>\n\n\n\n
Bank of England takes a hawkish tone<\/strong><\/h2>\n\n\n\n
Germany takes steps to boost defense and infrastructure spending<\/strong><\/h2>\n\n\n\n
China focuses on increasing consumption<\/strong><\/h2>\n\n\n\n
Looking ahead<\/strong><\/h2>\n\n\n\n
The week ahead<\/h2>\n\n\n\n
Date <\/strong><\/th> Report <\/strong><\/th> What it tells us <\/strong><\/th><\/tr> March 24<\/td> Eurozone Manufacturing Purchasing Managers\u2019 Index (PMI) <\/td> Indicates the economic health of the manufacturing sector. <\/td><\/tr> <\/td> Eurozone Services Purchasing Managers\u2019 Index <\/td> Indicates the economic health of the services sector. <\/td><\/tr> <\/td> UK Manufacturing Purchasing Managers\u2019 Index <\/td> Indicates the economic health of the manufacturing sector. <\/td><\/tr> <\/td> UK Services Purchasing Managers\u2019 Index <\/td> Indicates the economic health of the services sector. <\/td><\/tr> <\/td> US Manufacturing Purchasing Managers\u2019 Index <\/td> Indicates the economic health of the manufacturing sector. <\/td><\/tr> <\/td> US Services Purchasing Managers\u2019 Index <\/td> Indicates the economic health of the services sector. <\/td><\/tr> <\/td> Bank of Japan Monetary Policy Meeting Minutes <\/td> Gives further insight into the central bank\u2019s decision-making process. <\/td><\/tr> March 25<\/td> Germany Ifo Business Climate Index <\/td> Indicates early economic developments in Germany monthly. <\/td><\/tr> <\/td> Conference Board US Consumer Confidence <\/td> Details US consumer attitudes and expectations for inflation, stock prices, and interest rates. <\/td><\/tr> March 26<\/td> UK Consumer Price Index <\/td> Tracks the path of inflation. <\/td><\/tr> <\/td> UK Spring Forecast Statement <\/td> Provides an update from the government on the state of the UK economy. <\/td><\/tr> <\/td> US durable goods <\/td> Measures current industrial activity. <\/td><\/tr> March 27<\/td> US gross domestic product <\/td> Measures a region\u2019s economic activity. <\/td><\/tr> March 28 <\/td> UK gross domestic product <\/td> Measures a region\u2019s economic activity. <\/td><\/tr> <\/td> UK retail sales <\/td> Indicates the health of the retail sector. <\/td><\/tr> <\/td> GfK German Consumer Climate <\/td> Measures the level of consumer confidence in economic activity in Germany. <\/td><\/tr> <\/td> Germany unemployment <\/td> Indicates the health of the job market. <\/td><\/tr> <\/td> Eurozone Consumer Confidence <\/td> Tracks sentiment among eurozone consumers. <\/td><\/tr> <\/td> US personal consumption expenditures price (PCE) index <\/td> Tracks the path of inflation. <\/td><\/tr> <\/td> Canada gross domestic product <\/td> Measures a region\u2019s economic activity. <\/td><\/tr> <\/td> University of Michigan Survey of US Consumers <\/td> Provides indexes of consumer sentiment and inflation expectations. <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n