US EXCEPTIONALISM IN QUESTION
While Mr Powell calmed nerves by playing down the chances of a US recession and hinting that the Fed remains on course for rate cuts this year, the question is whether such cuts will have the same impact on the economy where policy uncertainty triumphs over geopolitical and trade norms.
Meanwhile, falling consumer sentiment and spending, potential slowdown in hirings, falling factory output, diminishing business confidence and rising import prices threaten to take the shine off “US exceptionalism”.
This is important because for the last 80 years, it is this so-called “exceptionalism” that has fuelled the growth of numerous economies around the world. More than just US military dominance, it is US “economic exceptionalism” and dominance that has supported economies from Peru to Poland, Jamaica to Japan, and Austria to Australia. Even China lifted itself on the back of US consumer demand.
For now, projections of an outright US recession seem somewhat exaggerated, given the intrinsic strength of that economy. That said, economists had as early as mid-2024 projected a US economic slowdown sometime later this year. Mr Trump’s muscular trade policies might simply accelerate and intensify the process.
On Mar 13, the Organisation for Economic Co-operation and Development (OECD) published its interim report Steering Through Uncertainty, where it warned of a softening of global growth prospects.
While the organisation still expects the US economy to grow by 2.2 per cent this year, this growth could slow to 1.6 per cent in 2026 as uncertainty and tariffs play out its full effects.
Canada and Mexico, the subject of US tariffs, will see greater impact, OECD reckons. OECD took down Canada’s growth to 0.7 per cent this year and next, while Mexico is expected to slide into a recession. China, facing 20 per cent tariffs while coping with an ailing economy, will struggle.
But Europe, despite facing the threat of higher sanctions, could see a revitalisation, if government stimulus (Germany, Europe’s largest economy, just announced a massive €500 billion (US$540 billion) stimulus package) and increased defence spending have their intended effect.
