Global economic uncertainty is intensifying, fuelled by political tensions, rising tariffs, while ongoing armed conflicts are rattling financial markets and disrupting industrial sectors.
In his latest global economic outlook, Dylan Setterfield, head of forecast strategy at Cap HPI, warned of mounting volatility, with recession risks climbing internationally. Crucial to that’s China’s defiant stance within the face of escalating US trade measures.
“China has made it clear they are not going to be bullied by US President Donald Trump,” said Setterfield, referencing Beijing’s dramatic response in the shape of 145% tariffs on US imports. This retaliation deepens an already strained trade relationship and, in line with Setterfield, could also be only the beginning of a wider economic fallout.
Geopolitical flashpoints
Beyond trade disputes, geopolitical tensions are simmering elsewhere. Taiwan stays a critical flashpoint, with growing fears that strained relations between China and the island’s recent government could boil over.
Setterfield underscored Taiwan’s strategic significance to the automotive sector: “The overwhelming majority of automotive semiconductors are made by TSMC. If China were to invade, the impact on the industry may very well be significant.”
In addition to the continuing conflict in Gaza and tensions between Iran and Israel, instability within the Red Sea and across the Suez Canal continues to disrupt global shipping.
“We’re greater than three years on from the Russian invasion of Ukraine,” Setterfield remarked. “Trump says he’ll sort that out in a day, but nearly 100 days into his return to the highlight, there’s still no sign of resolution.”
He cautioned that if the US disengages, the burden of response will fall on the EU and its allies -already under pressure from inflation and trade friction.
UK and EU prospects
Turning to the UK, Setterfield was critical of the Labour Government’s policy direction: “They’re still trying to seek out their feet with a stated growth agenda, but they’re taxing business and upsetting everyone with a series of quite strange decisions.”
Despite the fact that UK carmakers are subject to lower US tariffs (10% in comparison with 25% for the EU), they proceed to suffer from squeezed margins and a diminishing global role.
The EU, too, faces headwinds. Politically fragmented and economically strained, it may very well be prone to deeper instability especially if the US adopts a more isolationist posture.
Tariffs and recession risks
Setterfield took aim on the rationale behind the newest wave of US tariffs, questioning whether any coherent strategy exists. “Probably misguided, possibly deluded,” he said, warning that such policies are way more more likely to drive inflation and limit growth.
Referencing revised IMF forecasts, Setterfield noted that global growth projections have dropped from 3.3% to 2.8% this yr, while US recession odds have jumped from 25% to 40%. JP Morgan’s outlook is even bleaker, placing global recession risk at 60%, largely as a consequence of the tariff standoff.
“They expect tariffs to harm the American economy greater than anyone else and consider that the damage done to the US and China could drag down the remaining of the world,” Setterfield noted.
Financial markets
Setterfield also pointed to worrying signs within the financial markets. “The bears are definitely outnumbering the bulls,” he observed.
While stock indices corresponding to the Dow Jones and NASDAQ have slipped, it’s the bond market that alarms him more: “With bond yields rising, any income from tariffs may very well be greater than worn out. The rising cost of presidency borrowing is a transparent signal of market anxiety.”
Investors are fleeing to safe-haven assets, pushing gold prices to record highs.
Used automobile market resilience
Amid this turmoil, one sector stands out for its relative resilience: the UK’s used automobile market. Drawing on historical data, Setterfield challenged the idea that GDP contractions directly impact used automobile sales.
“There just isn’t the correlation that many expect,” he said. “In a recession, people still buy cars – just smaller, older, higher-mileage ones. That filters through your complete value chain.”
Luxury vehicle segments are likely to be less affected too, while broader price shifts are more closely linked to vehicle supply than to macroeconomic trends.
ZEV Mandate
Setterfield also critiqued the UK government’s recent updates to the Zero Emission Vehicle (ZEV) Mandate. While some relief has been offered to manufacturers corresponding to reduced fines and more flexible CO₂ credit rules, Setterfield argued the measures fall short.
“We could have introduced real incentives to spice up private retail demand – the list of missed opportunities is nearly infinite.”
Among the many changes, hybrids and plug-in hybrids can now be sold until 2035, and CO₂ credit flexibility has been prolonged. “Some significant changes,” Setterfield acknowledged, “but mostly geared toward easing penalties, not driving transformation.”
One possible vivid spot lies in energy prices. After spiking in February, wholesale electricity costs have dropped by nearly 30%, which can soon lower the UK’s energy price cap.
“That might support demand for electric vehicles,” Setterfield noted, “though don’t be surprised if prices spike again.”
As trade wars rage, conflicts persist, and the world faces the dual disruptions of aging populations and the impact of AI, the outlook stays volatile with Setterfield noting that “uncertainty just about reigns.”
This Article First Appeared At www.am-online.com
