Assessing the Sincerity: A Doubtful Permanence of the Peace?

The global economic landscape is undergoing significant changes, with trade wars and geopolitical shifts reshaping the financial landscape.

The United States has revised its GDP growth forecast downwards from 2.7% to 1.2%, primarily due to the ongoing trade war. On the other hand, China is emerging as a potential winner, with growth rates projected at around 4%.

Europe, however, is not left behind in the economic race. Increased defense spending is boosting economic growth, creating jobs and stimulating industries. Defense-related investments have risen, and the sector has become a key investment focus. Despite this, Europe's defense budget allocates only 5% to research and development, compared to the U.S.'s 16%.

The trade war is expected to significantly impact Latin American countries, such as Mexico, which heavily rely on exports to the U.S. The number of trade barriers has increased significantly, from 310 in 2010 to over 3,300 in 2023.

Discussions surrounding the de-dollarization of the global economy have gained prominence. The dollar's share of global reserves has dropped from 73% in 2001 to approximately 58% in 2024. The predominance of the dollar in global transactions is expected to gradually decline, despite accounting for 90%.

The trade war, marked by escalating protectionist measures, has led to a decline in global trade growth, predicted at 0.5%. This decline is expected to have consequences for the U.S., which could suffer from engaging in a trade conflict with the global community.

Europe, on the other hand, is well-positioned to benefit from the rebalancing of investor portfolios due to favourable growth prospects and interest rate differentials. The euro is expected to strengthen to 1.18, and European valuations remain significantly undervalued compared to their U.S. counterparts.

The Fed is expected to initiate a cutting cycle, with multiple interest rate cuts in 2026. Europe's growth rate is expected to hover around 1%, with Germany becoming the engine of Europe due to increased defense spending. This rise in defense spending is expected to generate an additional growth effect of around 0.3% to 0.6% by 2028.

China, in an attempt to prevent overcapacity, is ramping up production and exports. This poses a substantial threat to Europe, particularly its manufacturing sector. Gold, on the other hand, has been steadily appreciating since the 2009 financial crisis, with central banks diversifying their reserves and reducing their dollar holdings.

In conclusion, the global economic landscape is experiencing a shift due to trade wars and geopolitical changes. While the U.S. and China are making significant moves, Europe is well-positioned to benefit from these changes, with Germany leading the charge in growth and defense spending. The euro is expected to strengthen, and European valuations remain undervalued compared to their U.S. counterparts. However, Europe faces threats from increased production and exports from China, and the potential impact of the trade war on Latin American countries. Gold, as a safe-haven asset, continues to appreciate, and the dollar's dominance in global transactions is expected to decline gradually.