Economic cycle fluctuations: Expansion or contraction, where currently stand?
No economic doom and gloom on the horizon, buddy! According to our guru, Christopher Dembik, Senior Investment Advisor at Pictet AM, ain't no American recession in sight, even if we're experiencing a decent economic slowdown.
This slowdown might be significant during the first quarter, but it's not gonna be the end of the world. Analysts may have been barking about a recession after the "Liberation Day" and its tariff hullabaloo, but the White House's flip-flopping on new tariffs made them change their tune. Visibility for the economic future? Meh, it's always a bit murky, but that's nothing new.
Economic cycles have been less pronounced and predictable in recent years, with phases of expansion and contraction in GDP being smoother and less abrupt compared to the 1970s and 1980s. This was evident by the low volatility in economic growth, estimated over a five-year rolling period, which is at its lowest since the early 1950s in the U.S. and France.
So what caused this cozy, cyclical chill? Three main factors:
- Economic deindustrialization, which tamed those cyclical movements seen in the industrial sector
- Automatic stabilizers like unemployment insurance, playing a larger role
- Policy mix, with central banks and governments working like a well-oiled machine to dampen shocks and rev up the economic engine when necessary
To avoid current tariffs, companies are pulling out all the stops and getting creative. Remember Converse sneakers? Their soles are wrapped in polyester, not for fashion reasons, but to classify the sneakers as slippers in the customs nomenclature, allowing for a lower import tax. To dodge new tariffs, companies are relying more on Canada, especially Amazon's third-party sellers (who represent 60% of Amazon's sales) and Apple.
Despite these efforts, a recession is still a long shot. Statistics, like weekly jobless claims, the Philadelphia Fed’s manufacturing index, the ISM services index, and the unemployment rate, aren't showing anything alarming yet. If a slowdown does happen, it'll likely be in the service sector, but it won't probably reach fragility thresholds.
Still, an economic rebound could occur in the third quarter if the trade war calms down. The worst isn't certain, but we'll keep an eye on things. If you're interested in making the right moves in the stock market, don't forget to check out Momentum, our premium investment newsletter, which accurately predicted the current slowdown and boasts outperforming the CAC 40 since its launch. subscribe to our newsletter for more insights!
And off the record? Emerging challenges to predictability include trade policy volatility (e.g., import surges due to tariffs mucking up GDP components), labor market uncertainties linked to immigration patterns, and a decoupling of consumer confidence from spending behavior. The dance between stabilizing structural forces and new policy-driven uncertainties keeps economic forecasting intriguing, but also just a tad unpredictable.
- The economic future might still be murky, but according to Christopher Dembik, Senior Investment Advisor at Pictet AM, a recession in the United States seems unlikely, even during the current slowdown.
- Companies are taking creative measures to avoid tariffs, such as shifting production and classifying products in a way that reduces import taxes, like Converse doing with their sneakers.
- The economic cycles in recent years have been less pronounced and predictable, partly due to factors like economic deindustrialization, the increased role of automatic stabilizers, and a more effective policy mix.
- If the trade war eases, there is a possibility of an economic rebound in the third quarter, but analysts will continue to monitor emerging challenges such as unpredictable trade policies, labor market uncertainties, and a disconnect between consumer confidence and spending behavior.
