World economy: between risks and resilience

Last April, the world seemed to be headed for a recession and the markets for a crash. These concerns persisted for a few weeks. Then, the US and China reached a truce and other countries swallowed Trump’s new tariffs. Six months later, there has been neither a crash, nor a recession. Many assets have hit all-time highs and world trade has accelerated. When the results are so at odds with expectations, there is a temptation to explain why this time is different. This is generally an illusion, as has been well documented by historians of past crises. The resilience of the US, and hence the whole world, is undeniable. It results from transitory phenomena, such as inventory build-ups to escape tariffs, and others that are risky to extrapolate at their current pace, such as the AI-related investment boom. At the disaggregated level (by sector or country), many downside risks can still be identified. Financial conditions are fragile. The US labour market went through a severe cold snap over the summer. Debt trajectories are unsustainable in the US and France. Europe is caught between a rock (US tariffs) and a hard place (Chinese competition). From a macroeconomic standpoint, caution is the watchword.