Mid-year Outlook 2025 - "The summer will be hot, the autumn too."

It is an understatement to say that the first six months of 2025 have confirmed that the world has entered a chaotic, volatile, martial, and uncooperative era, where anxiety often competes with misunderstanding. There is little chance that this will change for the rest of the year. In the absence of strong convictions, here are some trends that are likely to continue:The trade war will continueThe United States is already imposing tariffs of over 15% ahead of the announcements on July 9, China is demanding photos and details of the technologies in which its rare earths are used, and Europe is hesitating between maintaining a low profile and showing the teeth of its anti-coercion tool, which seems appropriate. The search for resilient and regionalized supply chains will accelerate. The decoupling of economies is also underway, with the US now receiving only 13% of Chinese exports (down 35% in May) compared to 21% in 2016.No winners, only losers—except Germany?The US economy is not benefiting, with consumer confidence waning, rising prices alongside unemployment, while tax cuts will ultimately benefit only a few. Growth is projected at 1.2% (compared to 2.8% in 2024), and a slowdown will push the Fed to cut rates twice this year. Europe is expected to grow around 1%, with France at 0.6%. Germany is transitioning from the sick man of Europe to a boosted engine, announcing €850 billion in spending by 2029—an 18-point GDP stimulus—with a 55% increase in public investment starting next year. The defense budget will reach 3.5% of GDP and double to €162 billion by 2029.China is expected to achieve growth above 4% this year and has navigated the first six months of the tariff storm well. India seems to be a potential winner, while Vietnam less so.Dollarization continues to raise questionsAs the deficit approaches 7% again (with an additional €150 billion in public spending in Q1, hello Elon?), as emissions will increase, as global trade slows, and as historical creditors repatriate their savings (Chinese dollar reserves were $1,300 billion in 2011, now down to $750 billion), the dollar continues to decline. Our call for an EURO at 1.18 seems within reach of a new wave of tariffs (on July 9?).Oil prices are not expected to riseDespite the bombings in Iran, oil remains below $80. With a global economic slowdown, electrification (1 in 4 cars sold worldwide in 2025 is now electric), and rising OPEC production, we expect Brent to end the year around $63. The main risk, of course, is the Strait of Hormuz (20% of traffic, 90% destined for Asia, primarily China and India, while only 3% goes to Europe or the US).Markets are expected to continue to hold steadyWith results holding firm, comfortable margins, abundant savings, and supportive policy mix, we anticipate the S&P 500 at 6200 and the Euro Stoxx 50 at 5700 by year-end. A major risk would be a reassessment of valuations in AI monetization, especially when OPEN AI is valued at $300 billion and burned $5 billion in cash last year. Perplexity, valued at 400 times its profits of $34 million, leads us to believe the name is quite fitting...With expected rate cuts, increasing supply, and repatriation of flows to its "domestic habitat," the competition for savings will need to come with additional yield, likely reinforcing the steepening of yield curves while extending the movement in swap spreads.Decoupling between China and the US will accelerate, possibly with EuropeChina is becoming less tethered to the US, with only 15% of its exports going there, down from 21% in 2016. In May, exports to the US fell by 35%, while those to Europe increased by 11%.The adoption of Section 899, if it were to tax profits made in the US, would be even more impactful than tariffs and could increase caution or even lead to a withdrawal of investments.The planet will not be able to stay below 1.5 degrees by the end of the century. We're already close.However, there are hopes: China, despite a growth rate of nearly 5%, is seeing its emissions decrease by 1%. Europe is keeping pace, with emissions down 37% compared to 1990 and could realistically aim for a 55% reduction by 2030… if we accelerate the transition. Especially the top 10% richest, responsible for two-thirds of global emissions (i.e., everyone earning more than €43,000 gross annually…).