Doha: Qatar National Bank (QNB) anticipates that uncertainty surrounding US trade and fiscal policies will heighten concerns about a potential recession, leading to increased market volatility and a decline in investor and consumer confidence. This, in turn, could significantly alter growth projections.

According to Qatar News Agency, QNB's weekly economic report mentioned its earlier downward revision of US GDP growth, lowering its forecast from 2.2% to 1.5%. The bank also emphasized that global growth in 2025 will be heavily influenced by economic developments in the United States.

The report highlighted that the change in the US administration was initially met with investor optimism, driven by expectations of further tax cuts and significant deregulation. This positive sentiment, which prevailed from the conclusion of the US elections until January, was also reflected in major financial markets. A sharp rise in US equities (S and P 500) and the US dollar (US Dollar Index), along with a rebound in long-term yields (10-year US Treasury bonds), signaled heightened growth expectations for the US economy and an anticipated outperformance of the United States relative to the rest of the world.

However, the report noted a sudden shift in market sentiment in February as the new US administration began rolling out its policy initiatives. Within weeks, the "high-growth stock trades" that had accompanied the early days of Trump's presidency faded, with all major market movements retreating to pre-election levels. At the end of February and the beginning of March, the narrative surrounding growth shifted from a "no-landing" scenario, along with concerns over overheating and inflation, to discussions about an impending recession. In fact, the forecasting model developed by the Federal Reserve Bank of Atlanta now predicts a sharp contraction of 2.4% in US GDP for the first quarter of 2025, a significant decline compared to the 2.3% expansion in the previous quarter.

The report examined the fundamental changes that led to the deterioration in economic activity and market expectations, attributing it to two main factors. The first was that trade tariffs had become a much higher political priority for the government than initially anticipated. This has led to discussions involving 25% tariffs on Canada and Mexico, 20% on China, 25% on all steel and aluminum imports, as well as "comprehensive tariffs" and "reciprocal measures" on all countries and products. The report noted that, collectively, these discussions represent a substantial increase in uncertainty surrounding trade policy. According to the Trade Policy Uncertainty Index, which measures the monthly frequency of articles discussing trade policy uncertainty as a percentage of total news articles in major US newspapers, trade uncertainty is already higher than it was during the peak of the "trade war" with China during Trump's first term (2017-2021).

This uncertainty disrupts capital expenditure plans by large corporations and foreign direct investors, as supply chains must be redesigned and cost structures reassessed. Tariffs, as an indirect form of taxation, also negatively impact household disposable income, exerting pressure on overall consumption. Consequently, tariff policies undermine market optimism, leading to declines in investment, consumption, and growth.

The report, in discussing the second factor, emphasized that the sudden shift in fiscal priorities also negatively impacts demand and growth expectations. In recent years, the United States has pursued expansive fiscal policies, which resulted in an increase in its deficit to approximately 7% of GDP, thereby supporting its economic performance. However, currently, while the new US administration's economic team is pushing for a substantial fiscal adjustment to reduce the deficit to around 3%, US growth may slow down significantly. It is important to note that some of the government's political initiatives aimed at promoting savings and improving efficiency, such as those implemented by the Department of Government Efficiency, have been viewed as overly harsh, generating significant uncertainty, concern, and opposition.

The threat of mass layoffs for US public sector employees reflects a negative outlook for consumer confidence. The US government is the largest single employer in the country by a significant margin, employing around 3 million civilians and approximately 1.3 million active-duty military personnel. As a result, fiscal austerity measures and initiatives led by the Department of Government Efficiency negatively impact consumption and overall demand, likely serving as a drag on growth.