Rising political pressure, trade fragmentation, and weakening institutional guardrails are driving a structural shift toward higher volatility, inflation risk, and interest rates. Banks and markets are being forced to reassess long-held assumptions as geo
The global economy is entering a
period of sustained volatility as political decisions, rather than market
fundamentals, increasingly shape financial outcomes.
According to the chief economist at a
leading European bank, the current environment represents a structural break
from the stability that defined the decades following the global financial
crisis.
“We are no longer in a low-volatility
world,” the chief economist told CeFPro’s Treasury & ALM Europe conference
at the end of last year. “What we are experiencing now is a regime shift driven
by politics, geopolitics, and fiscal dominance.”
He described the present moment as
part of a longer historical cycle in which economic institutions weaken under
political pressure.
In his view, the postwar order that
anchored global growth, free trade, and monetary discipline is being steadily
eroded, creating uncertainty that markets are still struggling to price
correctly.
Trade policy has become a central
source of disruption. The renewed use of tariffs under President Donald Trump,
the economist argued, reflects more than tactical negotiation.
Instead, tariffs are increasingly
being deployed as a fiscal instrument to support large budget deficits and
ambitious domestic spending programs.
“Tariffs are not just about trade
anymore,” he said. “They are becoming a way to raise revenue in an environment
where political appetite for spending restraint has disappeared.”
This shift carries direct
consequences for corporate profitability. For decades, global firms benefited
from expanding margins driven by globalization, labor arbitrage, and efficient
supply chains. That trend, he warned, is now reversing.
“You cannot double profit margins
over thirty years and assume that continues indefinitely,” he said. “Those
gains were built on a global system that no longer exists in the same form.”
Currency markets are already
reflecting this uncertainty. The economist pointed to unusual movements in the
dollar that break with long-standing relationships between interest rate
differentials and exchange rates.
Despite relatively high U.S. yields,
the dollar has weakened, signaling declining confidence rather than cyclical
adjustment.
“When traditional correlations break
down, markets are telling you something important,” he said. “They are
questioning credibility.”
European exporters face particular
pressure as tariffs and currency shifts combine to erode competitiveness in key
markets.
Products that were attractively
priced only a year ago have become materially more expensive for U.S. buyers,
threatening volumes and margins.
