Market: Trump facing reality, Pictet WM's analysis
' Despite the current turbulence, our overall view remains optimistic', reports Frédérik Ducrozet, Strategist at Pictet WM. The U.S. economy remains buoyant, with the America First plan and good inflation figures," he adds.
The specialist points out that the fears of recent months already seem far away: just this summer, a disappointing employment report in the U.S. was enough to worry the markets and raise the spectre of a possible recession...
So, while optimism is reasonably high, market participants are still hanging on the Trump administration's every move - and sometimes bewildered by statements as unexpected as they are worrying about Washington's views on Greenland, the Panama Canal or Canada.
The thorny issue of exorbitant tariffs, a threat regularly brandished by the Republican, remains in abeyance. At Pictet WM, we don't believe that Trump can impose 20% tariffs on all imported goods and on the whole world," says Frédérik Ducrozet.
' Even if he has said he wants to revolutionize the way taxes are collected, he's going to use this leverage as a negotiating tool instead. He's also going to be confronted with a reality principle, and that's what's currently holding up the markets.
Pictet WM points out that the Republicans have a narrow majority in Congress, and that mid-term elections are scheduled for 2026. Against this backdrop, the bank believes that any measure that is too penalizing or too radical on the fiscal front would risk undermining the Republican majority in the House.
' Let's not forget that we're talking about a country with a deficit of more than 6% a year, and that a third of its debt has to be refinanced over the next twelve months', argues the specialist, who believes that in these circumstances, some Republicans might not support the most radical Trumpist measures.
Pictet WM also raises a paradox: while Donald Trump can attribute part of his victory to the grumbling caused by inflation in the USA over the past three years, the measures he is proposing, whether on tariffs, taxation, immigration or deregulation, are for the most part .... inflationary!
' If the measures he adopts are too extreme and boost inflation, we run the risk of seeing bond yields rise, while the Fed will no longer be able to lower its own. He will have to face up to this reality and quickly return to something more reasonable", Frédérik Ducrozet anticipates.
Even if they remain in a weak position, China and Europe may also apply retaliatory measures that could have an impact on the US economy.
In view of the situation, Pictet WM expects an average tariff level of 5%, even if Beijing may find it difficult to escape the 20% promised by Trump.
Furthermore, while the Republicans were promising a cut in the tax rate from 21% to 15% on companies producing in the USA, Pictet WM anticipates the adoption of an 18% rate, believing that the cut would otherwise be 'too costly or politically difficult to implement'.
Finally, while the Trump/Musk duo were aiming for a saving of 2,000 billion on the federal budget - thanks to a new department dedicated to government efficiency - this would be vastly overestimated, according to Pictet WM. Thus, 'if we were to reach 500 billion over 10 years, that would already be the end of the world', believes Frédérik Ducrozet.
Pictet WM thus anticipates a deceleration in US GDP, from 2.7% in 2024 to +2.3% in 2025, while global GDP would fall from 3.1% in 2024 to 3.2% in 2025. For the eurozone, Pictet WM anticipates growth of 1% in 2025, compared with 0.9% in 2024.
Against this backdrop, the bank forecasts a 50bp cut in Fed rates in 2025, and a 125bp cut for the ECB.
Finally, Frédérik Ducrozet spoke of the "deteriorated" situation in France. Personally, I'm not worried about debt per se," says the specialist, pointing instead to the question of potential long-term growth.
In this respect, Pictet WM highlights 'three pressing issues' on which action should be taken this year, at the risk, according to the bank, of seeing growth prospects deteriorate again.
' The first is Ukraine. Europe must be at the forefront in negotiating the conditions for maintaining security, so that our defense resources can be deployed and used by all", says the expert.
Frédérik Ducrozet also mentions energy policy, which appears to be at a disadvantage compared with the USA. Measures have been taken, but we're not there yet', he insists.
Finally, Pictet WM suggests the creation of a capital market: 'The big banks and the big champions elsewhere should be able to merge and form European banks that are in a position to finance companies. The options are on the table, but political leadership is still lacking. '
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