Doha: Qatar National Bank (QNB) affirmed that the outlook for the global economy remains positive despite trade disruptions, noting that the world economy will largely remain resilient in the face of uncertainty and turbulence in global trade flows.
In its weekly report, the bank explained that at the start of this year, global economic forecasts pointed to steady growth, driven by cautious optimism.
The report highlighted several factors supporting this optimism, including interest rate cuts by major central banks, the resilience of US economic growth, cyclical recovery in China and the Eurozone, as well as a general improvement in investor confidence.
The bank noted that initial estimates suggested stable growth rates in both advanced and emerging economies compared to the previous year, supporting global growth at a rate of 3.3 percent.
However, the report said that this optimism was short-lived, as it began to shift when the new US administration started implementing strict trade policies that had implications for the global macroeconomic outlook.
It pointed out that US President Donald Trump’s Apr. 2 announcement, referred to as "Liberation Day", of imposing sweeping tariffs that included a 10 percent baseline duty on all imports and higher rates on selected countries, triggered a sharp reaction in financial markets, with global stocks declining amid fears of broader and deeper trade conflicts.
In light of these changes, forecasts shifted to the possibility of a global recession. At their lowest point, global growth expectations fell by 0.5 percentage points from their recent peak to 2.8 percent, a significant drop in a very short period of time.
The report added that since then, asset prices have recovered, major indices have reached new highs, worst-case trade war scenarios have been discounted, and growth-supporting factors, particularly those tied to artificial intelligence, have re-emerged, while corporate earnings remained strong.
As a result, growth expectations stabilized and even saw some recovery. It is now expected that advanced economies, which account for 40 percent of the global economy, will grow by 1.5 percent this year, up from a low of 1.4 percent.
The report noted that growth expectations for emerging economies rose to 4.1 percent after a prior drop of 0.5 percentage points to 3.7 percent, representing a significant recovery of earlier losses. Together, the expected rebound in both advanced and emerging economies supports an improved global outlook, with overall global growth now projected at 3 percent this year.
QNB argued that despite challenges posed by higher US tariffs, the global economy will remain largely resilient against uncertainty and trade flow disruptions. It pointed to two main factors behind its view of improved global economic prospects.
The first factor is the conclusion of the US administration’s initial round of negotiations, which helped ease uncertainty and eliminate more extreme negative scenarios. President Trump’s position shifted to a more pragmatic approach, reaching agreements with the United Kingdom, Japan, Indonesia, Vietnam, the Philippines, and the European Union, among others, reducing the scope for imposing potential tariff rates on the rest of the world.
In addition, the report noted that despite rising protectionism in the United States, most other economies around the world moved strongly in the opposite direction.
From the EU to Asia and Latin America, major economies continued to treat trade as a cornerstone of their growth models and actively sought to strengthen economic integration by concluding new trade agreements or enhancing existing ones. This contributed to improved global trade prospects and led to a less pessimistic growth scenario.
The second factor, according to the report, was the monetary policy easing cycles undertaken by major central banks, which improved overall financial conditions and stabilized the global economy.
The US Federal Reserve and the European Central Bank, the two most important central banks in advanced economies, were able to start interest rate cutting cycles thanks to their success in containing inflation.
The report noted that the Federal Reserve is expected to cut its benchmark interest rate by 125 basis points over the coming year, while the European Central Bank may introduce an additional reduction, bringing its reference rate down to 1.75 percent.
Equity markets have witnessed a notable recovery supported by strong corporate earnings, while corporate credit spreads have narrowed, signaling improved market sentiment and easier access to credit for companies.
The Financial Conditions Index provides a useful summary of the overall state of markets, showing that improved conditions lower borrowing costs for households and firms, thereby supporting consumption and investment.
QNB concluded its report by noting that while global economic expectations deteriorated sharply in the immediate aftermath of the US tariff announcement, this pessimism gradually faded with improved prospects for international trade and stronger financial conditions supporting consumption and investment, ultimately leading to better expected performance for both advanced and emerging economies alike.
