With the return to protectionism under the Trump administration, Joann Spadigam, NatWest European Rates Strategist, provided a comprehensive insight into the likely impact of these events on the global economic environment. Her observations and forecasts included:
 

• For now, Trump’s bark is worse than his bite. As the dust settles after the initial market volatility following headlines on tariffs on Canada and Mexico, the extended deadlines for tariff implementation are now more in line with what we felt was likely before the announcement. The decision not to impose tariffs near-term on Canada and Mexico follows the pattern seen with Colombia. Escalate, force concession, back off. Market sensitivity to future trade escalation threats may fall from here.
• The EU is next on Trump’s list, but expect limited impact on European growth. Trump has made it clear that the EU is in his tariff sights, but challenges remain. First and foremost, Trump appeared to face a much larger pushback from lawmakers on the Mexico and Canada tariffs and a larger immediate-term decline in equity markets than he may have anticipated. The political capital to impose tariffs on Mexico and Canada was high, and it may also be high for the EU. Markets may see a push to quickly impose EU tariffs as unlikely to come to fruition as quickly as threatened. In any case, we see the impact of a 10% tariff on the Euro area as fairly minimal at around 0.1-0.2% of GDP, in the absence of retaliation.
• Euro area data and events have remained consistent with our central scenario of a series of 25bp cuts – enroute to neutrality, and terminal rates at 2%. Activity remains sluggish, but we still expect a recovery to materialise over the year. Lower interest rates, healthy real disposable income dynamics, high saving rates and support from NGEU expenditure should be enough to prompt a rebound in activity as the year progresses. That’s also suggested by the latest ECB’s Bank Lending Survey, which projects a rising credit cycle. Trump’s policies pose a risk, but on balance we see the full package of Trump’s policies as broadly neutral for the euro area. Inflation trends continue to be sufficiently close to target. All measures of inflation (expectations) are pointing to 2%; and wage trackers suggest that “wage increases in 2025 will be significantly lower”, as ECB’s Lane stated in a recent interview. Finally, the euro remains non-inflationary in trade-weighted terms despite the dollar strength.

Subsequently, Arjun Shah, Director European FX Sales at NatWest together with Dan Pilkington, Regional Lead on Cyber for the UK Government’s FCDO and Scott Livingstone, International Adviser at NatWest, led a fireside chat on the evolving geopolitical risks that impact businesses and economies worldwide, and provided compelling advice on how organisations can navigate this volatility and strengthen their resilience. Key takeaways included:
 

• Trump’s America First policies have increasingly focused on expanding hydrocarbon production and trade, with the aim to employ a more assertive and transactional approach from Washington into European capitals.
• In addition, the withdrawal of the US federal government from multilateral cooperation on climate change has created a vacuum and opportunity for China to lead the global energy transition, backed by its deep Renewables and EV industry, and supply chain of critical minerals.
• The emergence of sophisticated hybrid warfare targeting digital and energy infrastructure across both physical and cyber domains, as well as unresolved security threats in the middle east, presents a key risk for prolonged disruptions to energy supply and trade which may further compound inflationary pressures.

Finally, NatWest’s Caroline Haas led a panel discussion on the role of the energy transition in securing economic growth and resilience in Europe, which featured Rasmus Bessing, Head of ESG & Co-CIO at PFA Pension, Benjamin Gibson, Senior External Affairs Manager, Geopolitics at Ørsted and Sebastian Olguin Sørensen, Head of ESG Advisory at Copenhagen Infrastructure Partners. Their key messages were:

• Looking at how investors and corporates are integrating decarbonisation considerations across their investment and business strategies, sustainability remains as a key lever for capturing long term value creation and futureproofing against downside physical and transition risks.
• Investors recognise the need to balance active ownership and divestments to drive material progress in the energy transition, especially within high emitting sectors such as mining and fossil fuels, whilst carefully constructing their portfolios to deliver the risk-adjusted-returns selected by their end investors.
• Public-private partnerships play a crucial role in scaling climate solutions, such as green hydrogen and battery storage, by infusing investor confidence and reducing the inherent risks involved in early-stage technologies.
   

To discuss any of the ESG topics covered in this article, please get in touch through your usual bank contact.