HUGO PATRICK BOLGER
Ireland
2m
The second half of 2025 delivered a complicated and sometimes contradictory story across stock markets and the global economy, with tariff policy and inflation uncertainty sharpening near-term risks but strong corporate earnings and hope of rate cuts boosting the case for cautious resilience. Equity markets continued to oscillate between risk-on rallies and sharp corrections. After the spring tariff shock that set the tone for the year, markets largely recovered but lost ground as investors cautioned slower central-bank tightening with stronger corporate earnings priced into valuations. Despite headline shocks from inflation to tariffs, major indices across the world posted strong positive performance. Tariff dynamics remained in play in 2H25 and have increasingly shaped regional trade flows. The US stance on broad tariffs continued to force exporters to reroute supply chains and seek alternative markets. Importing nations wrestled with competing pressures to protect domestic industry while avoiding retaliation or disruptions to their own export channels. Cheaper Chinese goods have filled gaps in trade flows, intensifying competitive stress in parts of Europe’s industrial base, where corporate earnings warned of revenue hits and higher costs for manufacturers exposed to disrupted input chains. China’s role in this phase has been pivotal, reporting a USD 1 trillion global trade surplus in December. For markets, China’s persistent export strength has been a double-edged sword – a source of global disinflationary pressure in some goods, but also a political trigger (particularly with the US) that could prompt more restrictive measures and supply chain realignments. In Europe, a surge of competitively priced Chinese industrial and high-tech goods entering European markets has depressed prices in affected industries and inflicted pain on some manufacturers while mildly producing disinflationary benefits for the wider economy. This has complicated the ECB’s rates policy and easing timing. Economies with concentrated exposure to manufacturing and engineering exports reported clearer revenue pressure and downgraded near-term forecasts, whereas service-oriented and diversified economies showed greater resilience. Emerging markets faced a mixed picture too: some benefitted from diverted trade flows, while others struggled with commodity and trade shocks. Monetary policy has both mitigated and amplified those trade shocks. Central banks in many advanced economies have started to indicate the possibility of easing as disinflationary effects from cheaper imports and lower energy prices (US oil prices at lowest levels since 2021) become clearer. This easing path steadied bond yields and supported exposure to risk assets. However, pockets of weak manufacturing activity and commodity shocks kept headline growth fragile and uneven. Central Banks have been explicit about the balance they are trying to strike: preventing premature loosening that would reignite inflation while providing breathing room for economies weighed down by trade frictions. In summary, through 2H25, companies have accelerated supply-chain diversification, investors have rotated into sectors seen as beneficiaries of slower rates or cheaper imports (tech & growth sectors, discretionary, healthcare, REITs), and policymakers have introduced targeted support for disrupted industries while managing the move towards protectionist policies. Despite the persistent risks, many market analysts have been bullishly positioned into December, arguing that central-bank prudence, contained inflation and resilient corporate profits could carry markets into a cautiously constructive start to 2026. Though they repeatedly warned that policy missteps or a fresh escalation in trade barriers would rapidly reverse that outlook. Looking ahead to 2026, IMF expect only modest growth improvement in 2026 relative to 2025, reflecting an outlook of continued slowing in advanced economies offset by steady growth in many emerging markets. The IMF estimate that global growth will remain at around 3% in 2026. In the private sector, some analysts have put weight on easier monetary conditions and disinflationary tailwinds from cheaper imports as catalysts for a cyclical pickup, while others flag the risk that sustained tariff expansion, renewed geopolitical strain could cut investment and trade, tipping growth lower. Largely, 2026 is expected to be better than the lows of 2025, but far from a robust, broad-based rebound. 2026 will be defined by those firms and economies that successfully adapt supply chains, capture pockets of demand growth, and steer policy to reduce uncertainty. As I have mentioned in previous posts, uncertainty is the killer of growth and as we move into the second year of Trump’s tenure, we have little certainty as to what he may bring in the coming year.
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