Everyone is expecting recession, but what if we get the opposite?
This week’s chart comes from the latest Market Cycle Guidebook and presents a sort of “what if?“ scenario… one that is probably “unthinkable“ from the standpoint of where consensus seems to have drifted to.
Basically the key premise in the chart is that there has been a clear Global pivot to monetary policy easing already — and with the usual leads/lags of policy transmission there should be a bunch of monetary tailwinds coming into play right about now.
So instead of getting a recession, what if we get the opposite?
(what if growth accelerates rather than stalls?)
That’s not to dismiss the real adverse impacts of the tariff shock…
And when it comes to the USA specifically, there are a lot of short-term pain points from policy moves this year e.g. fiscal tightening from DOGE cuts vs previous years fiscal stimulus, tariff impacts, collapse in tourism numbers (and other US product boycotts), and adverse confidence effects from uncertainty and market volatility (makes it hard for businesses to plan or expand vs just battening down the hatches).
But there are also good things going on, and strong spots, and parts of the economy that are less directly impacted by tariffs. So even with the USA you could still end up with a winners vs losers K-shaped economy that muddles through like it did during the inflation and rates shock of 2022-23.
Meanwhile on the global front conventional wisdom and consensus probably says something like “you can’t have a US contraction and a rest-of-world expansion“ — but I think in this instance that assertion would ignore the idiosyncratic factors faced by the USA itself, and some of the domestic strong spots in the rest of the world + increased multilateral trade + greater stimulus/monetary easing seen outside of the US (vs current policy settings in the USA are not growth friendly).
So to take a non-consensus “what if“ even further… what if you saw the global economy accelerate and US economy stall?
The probability of that may be small, but it is not zero.
Food for thought as the unthinkable seems to have a habit of becoming thinkable in these non-boring times…
Key point: An unthinkable non-consensus growth surprise is a possibility.
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