Industrial activity remains weak

Summary 

►The coming year will likely be dominated by the decisions of D. Trump and the economic policies implemented by his administration and the Republican-controlled Congress. Despite the president's proposals for key government positions, there is still much uncertainty. Firstly, not all candidates may be confirmed by the Senate. Secondly, despite the announcements of potential measures, the policies that will be followed could still surprise. As we have already communicated, we have adopted a moderate scenario. In particular, we consider that tariff increases will be much more limited than announced, as will the reduction in migration flows. Thus, the negative impact on inflation and growth would be moderate but not negligible. Nevertheless, the risk of a more significant impact seems slightly higher today than the opposite.

► For the rest of the world, the main impact will be on growth. For Europe, more expensive access to the American market, even if moderate, will slow down the economic recovery we still anticipate. China remains a target for D. Trump. Tariff measures or continued restrictions on access to American technologies will weigh on its growth. However, the implementation of retaliatory measures against American protectionist measures, depending on their extent, could have an even more negative impact on global trade and growth than anticipated.

►Central banks are likely to have more divergent trajectories in 2025 compared to 2024. In the United States, D. Trump's pro-business policies are likely to exacerbate the caution already displayed by the Fed at the end of the year. We expect two rate cuts during the year. The market has already become even more cautious. The ECB should continue a rapid reduction in key interest rates. This will be a crucial element in supporting the economic recovery. This reduction will be fueled by marked disinflation towards the 2% target. This would contrast with the United States, where the decline in inflation will be slower.

►For the markets, the approach of D. Trump's inauguration (January 20) could continue to support American risk assets in the very short term against the rest of the world, even though December showed the limit of excessive euphoria. We may enter a more cautious phase at the beginning of the year, especially since long-term interest rates have tightened significantly in the last part of 2024. The 10-year American rate at 4.6% is already close to the highest level of 2024. There is still a risk that long-term rates will tighten, but current levels seem more attractive. We believe that 2025 will require a lot of agility in portfolio management.

► We already have the first important economic statistics of the year. They concern the state of the industry worldwide. Unfortunately, the S&P PMI survey on the situation of global manufacturing activity showed that the last month of the year was not favorable. Indeed, the global index fell below 50 again. The slight decline in activity in the United States and a more marked decline in China were the main contributors to the overall decline. In the eurozone, the situation remained almost unchanged, with activity still in sharp contraction.

►In the United States, the ISM survey for the manufacturing sector in December was more reassuring than that of S&P. Indeed, the index continued to rise, approaching 50, the level that separates expansion from contraction. Partly, the difference is due to the new increase in new orders, while the S&P survey indicated a contraction. However, both surveys coincide on hiring, with a marked decline in the employment indicator.

► It is interesting to note that the ISM inventory indicator remained low. This is surprising because one might have expected a strong push in inventories to anticipate potential D. Trump protectionist measures on foreign trade. In fact, partly responding to this concern, car sales surged in December. These also responded to D. Trump's announcement to eliminate subsidies for electric car purchases.

► In the eurozone, the contraction in industrial activity continues, with Germany and France contributing to this decline. In fact, France still shows the most degraded situation in the zone, while the periphery is more resilient.

►In China, official PMIs confirmed the deterioration in industrial activity indicated by the private S&P (CAXIN) indicator. This is nevertheless surprising because one might have thought that here too, the anticipation of American tariffs could have stimulated production. However, and this is good news, the official PMI survey and the S&P survey for services saw a strong gain in December. This could indicate that some of the recent financial measures have had a positive impact on domestic demand.

► A final word on European politics. In Austria, President A. Van der Bellen is supposed to have a discussion today with H. Kickl, the leader of the far-right Freedom Party, which won the most seats in the Assembly. This comes after the conservative People's Party gave up forming a coalition with the Social Democrats. The conservative party has said it is ready to discuss with the far-right party, which it had always refused to do. Thus, for the first time since the end of World War II, a far-right chancellor may lead the country. This party is notably pro-Russian and climate-skeptical. If these positions are defended by Austria, it will be a new thorn for Europe, particularly concerning its position on Ukraine.