2025 Midyear Investment Outlook: The Global Reset

The global reset: Delving into the insights

My name is Paul Jackson. I'm here to introduce Invesco's 2025 midyear outlook, and if there was a year in which a review of a global outlook was needed, we think this is the one.

How is the global reset changing the macro environment?

So, yes, there is a massive global reset going on at the moment, and it's not just economic. There is a broad reset, which is geopolitical, with changing relationships between countries and

regions and alliances that are changing, particularly in Europe around defence, which we think does offer opportunities in Europe.

There are changing trade relationships. The tariff policy introduced by the United States will have a big effect on the US economy, but it is obviously impacting every economy around the world. 

And I think there is just this feeling of uncertainty for policymakers about how their relationships with the United States will evolve. And so relationships with other countries are also now perhaps put at a premium in order to offset that uncertainty around the United States.

How will the trade war evolve?

The trade war has evolved very rapidly. We started off with the announcement of reciprocal tariffs on the 2nd of April 2025, which really were set in penalising tariff rates by the US on the products of other countries.

And this suggested there was going to be a lot of damage to the global economy, particularly to the US. And financial markets reacted violently to this proposal.

However, we have since rowed back. The tariffs proposed by the US are now at a lower level, and trade deals are being negotiated country by countries. So, we're hopeful that although there will be damage, it will now be a lot less than originally feared.

Will the US economy avoid a recession?

So, there's been a lot of debate about whether the US will go into recession. Our view is that although there will be an economic slowdown, we're unlikely now to have that recession.

I think with the original proposals on the 2nd of April, you are very likely to get a recession. But I think now with where we're landing in terms of tariffs and trade deals, less growth in the US, but certainly not a recession.

What does a potential pullback of the US mean for the global economy?

Of course, if the US economy struggles, then the rest of the world is likely to be impacted.

There was an old expression that when the US sneezes, Europe catches a cold.

And because of the size of the US economy, it is still the world's largest economy, because of the size of the US economy it clearly leads the rest of the world.

So, when the US slows down, the rest of the world will suffer some consequences because of the trading relationships. There'll be less exports going into the United States. So, yes, a slowdown in the US economy, perhaps with one percentage point less growth than there would have been otherwise, will have a knock-on effect elsewhere.

But we think that other parts of the world won't suffer as much as the US, and also in critical parts of the world, there are offsetting policies which can help to dampen the effect.

Trade is decoupling between the US and China. What are the implications of this?

Of course, China is an economy that is particularly linked to the US economy. China provides a lot of goods that go into the US. Chinese businesses obviously produce in China, but also a lot of US companies manufacture their goods in China and then ship them to the United States. So, the two economies are intimately linked.

Now, if you put a blockage between those trade flows, if you make it more expensive

to send goods from China to the United States, you inevitably will have an impact on the flows and therefore a dampening effect on the Chinese economy, but also on the businesses, for example, of US companies that are currently producing in China. 

So, it has a broad effect, but probably as a consequence of that effect, the fact that China sends less goods to the US probably means that you get more Chinese goods going into the rest of the world.

So it could, in a sense, have a disinflationary effect in the rest of the world, helping to push down inflation.

What is the impact of China joining the US in the artificial intelligence game?

Technological developments are very important for the world. And we are used to the idea that the United States is the dominant technology force.

However, there have been developments recently coming from China, which already has been dominating in fields such as solar energy and is starting to really compete in the electric vehicle market.

The recent announcements by DeepSeek, for instance, in China, suggest that when it comes to artificial intelligence, the US is no longer the sole and unique leading power. China is making great inroads, showing that you don't need to spend as much money as some of these US companies have been doing to come up with the same result. 

And so, I think there is going to be a better level of competition between China and the United States, and our view is that that does have an implication for the valuation of US technology companies, probably depressing them and boosting the valuation of Chinese tech companies.

Can Europe escape a hit to growth from the trade war?

So, various regions in the world are able to offset some of the negative effects coming from the trade war that the US is waging.

Europe is an obvious example where, because of the changing geopolitical environment with Europe being less able to rely on the United States, most European countries are going to boost defence spending.

But not only defence spending. They also now need to roll out their military-industrial complex so that they can produce more of these goods themselves. So, that will boost the European economy, and at the same time, Germany is going to be spending a lot of money to upgrade its infrastructure. The sums of money involved here over at least a ten-year time frame suggest that there will be a significant boost to the German economy and to the European economy, because there will be imports from the rest of Europe going into Germany.

So, our view is that the European economy actually is going to accelerate, and over the coming decades will grow by more than we have seen in the last few decades.

Where do you see the opportunities?

In any period of volatility and stress, there are opportunities. And we foresee a range of opportunities out there.

The US equity market has dominated for decades, and we suspect that that may now be changing. Not only are there things going on in the US, perhaps with a weakening of the economy and a weakening of the dollar, but also there are now interesting narratives elsewhere.

So, for example, in China, whether we're looking at technology or the market in general, the Chinese market is quite active. And the Chinese economy, we think, can withstand the pressures coming from the trade battles.

So, Chinese equities are one area that could be interesting also in Europe because of the boost to the European economy. There is now an interesting growth narrative around Europe that has not existed for a long time.

So, we are detecting an increasing interest in European equities from around the world.

And to the extent that the global economy accelerates, let's imagine that things may not go so badly, and if the global economy did accelerate, then perhaps industrial metals, and also energy, may benefit from that.

And there are lots of other alternative asset categories where we see an interest and where we think that there could be opportunities, for example, private credit. Bank loans in particular are an asset category that I particularly like, but private credit in general, real estate, we think, does offer some opportunities.

So, there's a broad range of categories where investors, I think, can find opportunities, but as ever, diversification is key.