Asset Management: Monthly Macro Insights - August 2025
A stronger-than-expected first half
Despite fears of a recession following the announcement of new US tariffs in April 2025, the global economy proved more resilient than expected. Tariff measures were introduced gradually and accompanied by exemptions, while financial conditions eased and recession concerns subsided. Although US tariff levels have reached their highest levels since the 1930s, the most disruptive scenarios were avoided and economists have modestly upgraded their growth forecasts in recent months.
China has so far weathered higher tariffs relatively well thanks to front-loading by exporters and resilient shipments to markets outside the United States. However, recent indicators point to growing weakness. Business confidence deteriorated in July, manufacturing activity remained in contraction territory, and the property sector continues to struggle despite numerous support measures. These trends suggest that the Chinese economy could face a more pronounced slowdown in the second half of 2025.
The impact of the trade war may only be delayed
The acceleration in manufacturing output seen across many economies during the first half of the year, particularly in technology and pharmaceuticals, appears unlikely to be sustained. Business investment expectations for 2026 have weakened across G7 countries, while the effects of front-loading are expected to fade. As a result, the full impact of trade tensions may emerge with a lag, amplified by softer US demand and the cumulative effects of tariff and immigration policies.
The Fed faces a difficult balancing act
The Federal Reserve finds itself increasingly torn between its dual mandate of price stability and full employment. Inflation remains above target and wage pressures have stopped easing, yet labour market data point to a rapid deterioration in hiring conditions. While some policymakers argue for rate cuts to support growth, persistent inflation limits the Fed’s room for manoeuvre. In this environment, tariffs remain a key source of uncertainty as their inflationary effects could make monetary easing more difficult in the months ahead.
