Luis de Guindos, the European Central Bank vice president, noted the heightened uncertainty in the current environment, surpassing that experienced during the pandemic. The new US administration’s reluctance towards multilateral cooperation is seen as a substantial source of this uncertainty.
Despite improvements in real wages, declining inflation, decreasing interest rates, and better financing conditions, consumption remains stagnant. Consumers express concerns regarding the economy’s medium-term outlook, influenced by fears of trade wars and potential geopolitical conflicts.
Impact Of EU Defence Spending
While conclusions on EU defence spending plans are premature, they are expected to positively affect growth with minimal impact on inflation.
De Guindos’ remarks highlight the depth of uncertainty in global markets, exceeding even the turbulence seen during the pandemic years. The hesitation of the US government to engage in cooperative economic policies has introduced instability that affects investor confidence and risk assessment across multiple sectors.
Even with inflation easing, wages recovering, and borrowing becoming more affordable, households are not increasing their spending. Many remain cautious, holding back from making larger financial commitments. Concern over the broader economic picture is keeping consumer demand weaker than expected. Nervousness about possible disruptions in global trade and rising geopolitical tensions appears to be counteracting the economic improvements that would typically support stronger consumption.
Regarding European defence commitments, it is too soon to assess the full economic effects. However, projections suggest that increased military expenditure could contribute to overall economic growth while having little influence on cost pressures. Yet, broader fiscal policies and how they interact with existing budgetary constraints must be factored into any assessment of future developments.
Market Reaction To Uncertainty
What is particularly relevant in the coming weeks is how market participants adjust to this uncertainty, particularly as policy shifts and geopolitical developments continue to unfold. With underlying economic improvements running up against stubborn concerns about long-term stability, positioning will require careful reassessment. Movements in key indicators will not necessarily follow past patterns, making adaptability essential.
