A shifting landscape for the US election. Economies cooling, halting and a cause for concern: US,China and Europe respectively. Luxury: a little less alluring. Inflation tamed but still in flux. Deglobalisation is happening – except in sport. What’s happening with AI and productivity? The ascendancy of the far right.

  • A RADICALLY DIFFERENT LANDSCAPE FOR THE US ELECTION THAT COULD CHANGE EVERYTHING – Last month, Trump’s re-election was a quasi-certainty. This month, less so. Most polls and future markets still point to his victory, but not as categorically as before. In short: likely, but far from a done deal. It is hard to tell how Trump would govern and whether he’d implement most of his populist, economically and socially destructive, policies; but the ticket Trump-Vance – an ardent isolationist and MAGA embracer, is a cause for concern and a source of profound uncertainty. Most likely, all financial assets, apart from the USD, would suffer from Trump 2.0, with the possibility of the bond market rioting against policies that exacerbate the deficit and stoke inflation.
  • THE US ECONOMY COOLING DOWN – The systemically most important economy in the world is still growing at a 2% annualised rate, but the data is turning, with evidence that the labour market is deteriorating. Almost always, this tends to generate a self-reinforcing feedback loop, already evident in the deteriorating health of the US consumer and the service sector coming under pressure. It could be that the Fed starts cutting rates sooner than anticipated.
  • THE CHINESE ECONOMY STUCK IN A RUT – The country’s mounting trade surplus ($99bn in June: an all-time high) is proof of its leadership’s inability to redress the imbalance between China’s formidable productive capacity and its faltering domestic demand. The recent Third Plenum that took place against the backdrop of weak consumption, highly unequal wealth distribution and plunging foreign investment, dashed any hope of genuine structural reform. Short-term stimulus to support growth, such as cutting key interest rates to ease monetary policy, is the functional equivalent of kicking the can down the road.
  • EUROPEAN CONCERNS – Europe’s central bankers warned only recently of the mounting and conflating risks of government over-indebtedness and trade tensions. This at a time when eurosceptic far-right parties, determined to throw a spanner in the works of effective policy-making, are gaining momentum.
  • LUXURY IN THE DOLDRUMS – With very few exceptions, sales in the luxury goods industry – a leading economic indicator – are plummeting. Among the two ‘giants’, LVMH reported its lowest sales growth since 2009 (except for the pandemic) while Kering warned that its profits are tumbling. The cause: the slowdown in China and the US the sectors two major drivers of demand.
  • INFLATION TAMED? All over the world, inflation pressures have abated significantly, but we should nonetheless expect “more bumps in the road” (in the words of the IMF chief economist). Currently, service price inflation (mainly driven by higher wages) remains persistent in the US and the EU, and moving forward, the possibility of an escalation in trade and geopolitical tensions (particularly if Trump wins) is an ever-present upside risk to inflation. The deteriorating global economic outlook makes it likely that interest rates will decrease soon, but the “higher for longer” thesis (for interest rates) remains valid in the medium and long term.
  • DE-GLOBALISATION: IT’S HAPPENING – Even though several academics and practitioners question its reality, the process of de-globalization accelerated after the pandemic and the intensification of the US-China trade war. A new index that measures geopolitical fragmentation should dispel any lingering doubts. Based on 14 indicators ranging from the FDI/GDP ratio to the number of trade restrictions, it shows unambiguously that the global economy is today increasingly fragmented. Naturally, this hurts global GDP growth, with emerging and low-income economies suffering the most. This said, some countries in Latin America and Southeast Asia may experience some economic gains as “neutral” bystanders.
  • BUT SPORT IS GLOBALISING – With the help of tech. On the demand side, the nature of fandom is changing, as the younger population favours individuals over national teams. Stars like Lionel Messi (550m followers on Instagram) and Catlin Clark now draw football and basketball fans from all over the world. On the supply side, broadcasting is going global, moving from national channels to international streaming platforms like Apple, Amazon, Netflix and YouTube. Who profits? (1) Those platforms capable of providing global reach to the sports industry (globally, a business worth $600-700bn a year), and (2) sports betting – a fast-growing sector expanding at more than 10% per year.
  • THE ONGOING DEBATE ABOUT AI AND PRODUCTIVITY – It seems likely that narratives about AI triggering a productivity breakthrough got ahead of themselves. Apart from the big tech names and management consultants who have a vested interest in promoting the AI hype, there is a growing cohort of doubters. Their two key arguments: (1) AI remains very far from being adopted at scale across industries; (2) the “AI supply paradox” dictates that the easier it is to train AI to do something, the less valuable this thing becomes; (3) the AI “arms race” requires massive capital investment just to retain market share. This leads to oligopoly, which decreases competition, and in turn stifles innovation – the main engine of productivity.
  • POPULISM AND THE FAR-RIGHT ASCENDANCY – Contrary to the prevailing narrative, France’s far-right party was not crushed in the recent parliamentary elections: it was defeated by the “Republican front” but came first in terms of votes. In France, like in the rest of Europe and other countries, populist, nationalist right-wing politicians are on the rise. All sorts of reasons are being offered to explain why, but a new study shows it boils down to simple things that matter hugely in terms of how citizens experience and judge their governments. Their ability (or not) to provide three essential public services – education, health and infrastructure – largely determines the political outcome. The greater the decline in public services, the greater the appeal of populism.
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