President Donald Trump took office on January 20 amid a flurry of executive orders focusing on multiple issues—many with significant economic implications. Notable instructions signed off by the returning president include measures to deport illegal migrants, an “America First” trade policy, relaxation of energy- and climate-related policies, and various orders addressing the development of artificial intelligence.

On February 1, the US president announced a 25% import tax on goods from North American neighbors Canada and Mexico (with a 10% tariff on Canadian energy), together with a 10% tariff on goods from China. After discussions between the US president and Canadian Prime Minister Justin Trudeau and Mexico’s President Claudia Sheinbaum, Trump paused the introduction of tariffs on their respective countries. However, a US tariff of 10% on Chinese imports did come into effect on February 4, followed the same day by an announcement from China of retaliatory action.

A key announcement from Trump was the $500 billion Stargate initiative, designed to expand the US artificial intelligence infrastructure. Led by OpenAI, SoftBank, and Oracle, Stargate is the largest AI infrastructure project in history. Importantly, AI is set to become a focal point for rivalry among global economic powers, not least because of the advent of China’s DeepSeek platform, which was released on January 20. As it gained traction, the new low-cost AI model rapidly became the most downloaded free app in the US. Once the markets caught up with the trend, it wiped $1 trillion off the leading US tech stock index at the start of the final week of January.

Composite leading indicators, which seek to identify turning points in economic activity approximately six months in advance, point to a potential slowdown in economic activity across all countries, except for the US and eurozone (Exhibit 1).

Despite lingering uncertainties, the outlook remains positive for modest domestic demand growth in the eurozone. In the UK, the treasury’s roundup of analysts’ growth forecasts in January sees GDP growing at 1.2% in 2025. In China, median forecasts from more than 60 financial institutions predict a GDP growth rate of 4.5% for 2025. On the Indian subcontinent, the Reserve Bank of India (RBI) has projected a GDP growth rate of 6.6% for the fiscal year 2024–25, reflecting a recovery trajectory following earlier economic slowdowns.

Overall, across surveyed economies, consumers remain cautious, with their confidence affected by relatively high food and energy prices. December saw the US consumer confidence index (Conference Board) drop to 104.7, from 111.7 in November. Consumer confidence in Brazil remains below the neutral 100 mark and fell to 92.0 in December (95.6 in November), reaching its lowest level since June. Mexico saw consumer confidence decline slightly in November to 105.0, compared with 105.3 in October.

Spending recorded a slight deceleration in November but rebounded in December, likely boosted by the holiday period. Retail sales in the two big powerhouse economies continue to be relatively buoyant, even if consumers remain largely downbeat.

Inflation expectations reached their highest level in about two years, as businesses and consumers weigh the possible impact of tariffs. Consumer prices in developed economies accelerated slightly in December, driven by higher energy prices and services costs. A similar trend can be observed in the developing economies, although China continues to fight deflation. Nevertheless, the European Central Bank (ECB) cut interest rates by 25 basis points, while the Fed kept them unchanged from last month (Exhibit 2). China’s central bank injected $300 billion to boost liquidity.

Most commodity prices rose over the past month. Oil prices picked up in January, partially because of higher demand and also due to new sanctions on Russia and Iran; European gas has been trading at around four times the price of its US counterpart.

In the US, the consumer price index (CPI) rose 2.9% for the 12 months ending in December, after rising 2.7% over the 12 months ending in November. Core inflation slightly increased to 3.2% (annualized) in December. Median inflation expectations were unchanged at 3.0% at the one-year-ahead horizon but increased to 3.0% from 2.6% at the three-year-ahead horizon, according to the December Survey of Consumer Expectations.

Eurozone headline inflation in December was up to 2.4%, mainly owing to base effects in energy prices (0.6% month over month). Core inflation stood at 2.7%. Services inflation was 4.0%, which continues to point to strong domestic price pressures, with wages growth still elevated (4.6% in the third quarter of 2024).

In Brazil, inflation fell slightly to 4.83% in December 2024 (4.87% in November), decreasing for the first time since August but remaining above the central bank’s target upper limit of 4.50% for a third consecutive month. Mexico saw the annual inflation rate drop to 4.2% in December (from 4.6% in November), its lowest in nine months.

Between manufacturing and services, the tale of two sectors continues: The end of the year brought a contraction in the manufacturing sector, while services saw an acceleration in expansion. Overall production declined, accompanied by decreasing employment and rising input costs.

In conclusion, the global economic landscape is evolving rapidly, driven by geopolitical tensions, trade policies, and technological advancements. It is crucial for businesses and policymakers to stay informed about these changes and adapt their strategies accordingly.

Q: How are global trade volumes expected to perform in the coming months?

A: Global trade volumes are projected to continue increasing, driven by growth in advanced economies and emerging markets.