The world economy is defying expectations in the early months of President Donald Trump’s administration. Despite a wave of policy shocks – from aggressive tariff threats to an attempted shake-up of the Federal Reserve – global growth, equity markets and investor confidence have largely held steady. This resilience has surprised economists who, at the start of Trump’s term, predicted recession risks and a dramatic slowdown in trade.
Analysts point to several stabilising factors behind this unexpected calm. Supportive financial conditions, healthier corporate and household balance sheets, lower energy costs and hopes for an AI-driven productivity boost have all cushioned the blows. A feared all-out trade war has not materialised, with the US striking stop-gap deals with Europe and Asia. As a result, tariffs have remained more modest than once threatened, and their costs are being shared among exporters, importers and consumers.
Markets have also looked past Trump’s repeated efforts to reshape the Fed. Attempts to oust Fed Chair Jerome Powell and fire a sitting governor have so far failed, keeping monetary policy largely independent. In fact, the Fed cut its benchmark rate by 25 basis points this week, signalling confidence in hitting its inflation target. US Treasury yields remain relatively low, suggesting investors still see America as a safe bet.
The stability extends beyond the United States. China’s central bank held a key interest rate steady thanks to stronger exports and a stock market rally. In Europe, the ECB has upgraded its growth forecast, Italy is tightening its finances, and Spain’s economy is accelerating on the back of tourism. Even Germany, long stuck in stagnation, is preparing a major fiscal push on infrastructure and defence from 2026. Meanwhile, emerging markets such as Brazil, Mexico and India are benefiting from a weaker US dollar and are eyeing tax cuts to stimulate domestic demand.
Still, many investors warn the current optimism may be fragile. Tariff effects could take longer to show up, global supply chains remain in flux, and US economic growth is concentrated in AI and high-end spending while housing and hiring lag. Some see complacency in markets hitting all-time highs, betting on a “Fed put” – the belief that the central bank will rescue growth if it falters. For now, the global economy is steady, but policymakers and investors alike are bracing for the next surprise from Washington.
source: reuters