Paul Gruenwald- Growth requires addressing uncertainties｜SFC Markets and Finance
13:49
SFCChiefCorrespondentShiShiinTianjin
"We’retalkingabouttariffs,thefutureofglobalization,andpeopleareworriedaboutthesituationintheMiddleEast—soallofthebigmacroissues."PaulGruenwald,GlobalChiefEconomistatS&PGlobalRatings,statedinarecentexclusiveinterviewwithSouthernFinance.
Gruenwaldnotedthatinthefirsthalfofthisyear,theglobaleconomyhasshownsomeresiliencedespiteincreasinguncertainties.However,structuraldivergencehasbecomemorepronounced.Hepointedoutthattheimpactoftariffpoliciesontheglobaleconomyisnotonlyreflectedinthetariffsthemselvesbutalsointhehighdegreeofuncertaintytheybring.
Lookingaheadtothesecondhalfoftheyear,Gruenwaldidentifiedtheeasingofpolicyuncertaintyasoneofthekeyvariablesdeterminingthedirectionoftheeconomy.HeforecastedthattheU.S.economywillachievea"softlanding"thisyear;theEurozoneeconomyisexpectedtograduallywarmup;andChina'seconomy"looksquiterobust".Regardingemergingmarkets,Gruenwaldalsomaintainedarelativelyoptimisticattitude,statingthataslongasoilpricesremainlowandtheU.S.dollarisrelativelystable,thesemarketsareexpectedtoperformwell.However,healsoacknowledgedthatglobalgrowthwillbe"unbalanced"—differenteconomies,constrainedbydifferenteconomiccyclesandpolicyenvironments,willbeindifferentsituations.
Speakingofartificialintelligence,Gruenwaldexpressedthatthewidespreadapplicationofnewtechnologiessuchasartificialintelligenceisexpectedtobeanimportantdriverofglobalgrowthoverthenextfivetotenyears.
RaisethegrowthforecastforChina
SFCMarketsandFinance:Howareyoufeelingforthisforum?
PaulGruenwald:It’sverybusy.We’retalkingabout,obviously,tariffs,thefutureofglobalization,andpeopleareworriedaboutthesituationintheMiddleEast—soallofthebigmacroissues.
SFCMarketsandFinance:Youtalkedaboutthetariffs.Howwillthetariffinfluenceglobaleconomyinthesecondhalfofthisyear?
PaulGruenwald:Tariffsarenegativeforuseconomists—it’sessentiallyataxonyourself.Sowe’vebeenputtingthetariffsintoourforecast,andtheforecastsareabitlower.It’spartiallyduetothetariffsthemselves,butactuallymorebecauseoftheuncertaintyaroundtariffpolicies.
Whenthere’salotofuncertainty,firmsstopinvesting,consumersholdbackonspending,andtheM&Amarketgrindstoahalt.Sothelongerthisuncertaintyaroundtariffspersists,thegreaterthedownwardpressureongrowth.We’vetriedtobuildthatintoourforecast,butmyteambelievesthattheuncertaintysurroundingtariffpolicyactuallyhasalargereffectthanthetariffsthemselves.
SFCMarketsandFinance:ButS&PupgradedmanyregionswithGDPgrowth.What'sthelogicforthat?
PaulGruenwald:Well,wedidn’tchangetheadvancedeconomies.WechangedChina,becauseinourpreviousround,wehadhighertariffs,sowe’reassuminglowertariffsafterthesix-monthpause.
Weraisedsomeoftheotheremergingmarketsaswell.Sowehavealittlebithighergrowth—we’reat2.9%globallyrightnow.Andagain,alotofthatisjusttariffsweighingdownongrowth.
TheU.S.labormarketremainsstrong
SFCMarketsandFinance:Wearehalfwaythroughthewholeyear.Howdoyouthinkaboutthefirsthalfof2025?
PaulGruenwald:Thefirsthalfwasobviouslyallaboutthesetariffshocks.Wehavetariffsatrateswehaven’tseensincethe19thcenturyoutoftheU.S.Thosearepausednow,sowe’llhavetoseewhathappensinthesecondhalfoftheyear.
Butalotofthedataweredistortedinthefirstquarter.Forexample,intheU.S.,wesawasurgeinimportsascompaniestriedtobeattheApriltariffs,whichdraggeddowngrowthsinceimportsareanegativeinGDPaccounting.
InChinaandothercountrieslikeIreland,exportswerefront-loadedtogetaheadofthetariffs,whichmadetheirfirst-quartergrowthlookstronger.Sowe’reactuallylookingatthefirsttwoquarterstogether—we’renotfocusingonjustQ1orQ2,buttakingthemasawhole.
Justasanexample,intheU.S.,itlookslikeQ2isgoingtobeabout4%growth,soforthefirsthalfoftheyearasawhole,itmaycomeouttoaround2%—butit’sdefinitelyslowing.
SFCMarketsandFinance:Anythingsurprisedyou?
PaulGruenwald:Otherthanthetariffs,thesurprise—justlikeinthepasttwoyears—hasbeenthestrengthoflabormarkets.Despiteallthevolatilityanduncertainty,theU.S.labormarketremainsstrong,andsodoestheEuropeanlabormarket.
Inadvancedeconomies,that’sreallywhat’skeepinggrowthfromslippingintoarecession.Sotheonevariablewe’retellingeveryonetowatchistheU.S.labormarket.Ifthatstartstocrackandtheunemploymentrategoesup,that’sasignalwe’reheadingintorecession.Butrightnow,it’sjustaslowdown—notarecession.
TheFedmaycutratesonceortwicelaterthisyear
SFCMarketsandFinance:TheFedhaspausedratecuts,buttheECBandJapan’scentralbankhaveotherinterestratespolicies.Howdoyouthinkabouttheglobalmonetarypolicy?
PaulGruenwald:Well,itdepends.IntheEurozone,theyhadaborderlinerecessionlastyear,sogrowthwasslowingandinflationpressureswereeasing—givingthemroomtocutrates.
TheU.S.,ontheotherhand,didn’treallyexperiencearecession.Infact,theeconomywasrunningabithotlastyear,sotheFedkeptinterestratesrelativelyhigh.Tariffsarecomplicatingthepicturerightnow,soChairmanPowellhasbeenprettyclear:theyneedtoseeevidencethattheeconomyisslowing,andthattariffswon’thavealastingimpactoninflation.
Weknowtariffsmaypushupinflationinaone-offway—maybetoaround3.5%—buttheFedwantstolookthroughthattofocusontheunderlyingtrend.SotheFedisonawait-and-seepath,andit’llprobablybeafewmoremonthsbeforetheystarttolowerrates.
SFCMarketsandFinance:SowilltheFedcutratesthisyear?
PaulGruenwald:Wethinkthey’llcutmaybeonceortwicelaterintheyear.ThenewssayssomegovernorsarereadytogoinJuly,butwethinkthat’stooearly.Webelievethecutswillcomelaterintheyear.
ChairmanPowellhasbeenprettyclearthathewantstoseemoredataontariffsandhowmuchthey’repassingthroughtoconsumerprices.Sofar,thepass-throughhasactuallybeensmallerthanexpected.
SFCMarketsandFinance:WealsoseetheUSdollar’sdepreciation.Howdoyouthinkaboutthistrend,andwhat'stheimpactofthistrendonglobaleconomy?
PaulGruenwald:TheweakdollarissomethingthattheU.S.administrationwants—they’vebeentalkingabouthavingaweakerdollar.It’sactuallyhelpingsomeoftheothereconomieswithinflation,becauseifyourcurrencyisstrong,yourimportpricesarelower,whichkeepsinflationdown.That,plusloweroilprices—atleastuntillastweek—thosetwotogetherwereputtingdownwardpressureoninflation.
Sowesawalotofemergingmarkets’centralbankshavealittlemoreroomtocutrates.Havingastrongcurrencyholdsyourimportpricesdown,whichgivesyousomeroomtolowerrates.Soit’snotabadthingfortherestoftheworld,aslongasU.S.growthkindofholdsup.
SFCMarketsandFinance:Doyouthinktheemergingmarketswillperformbetterinthesecondhalfofyear?
PaulGruenwald:Itdependsonwhatkindofemergingmarketswe’retalkingabout.Forexample,Indiahasbeenagrowthstar.Chinausedtobethefastest-growingmajorcountryintheworld,andnowIndiaisthefastest-growingmajorcountry.
ForcountriestiedcloselytotheU.S.,iftheU.S.doesrelativelywell,theytendtooutperform.CountriestiedtoEuropehadaweaklastyearbecauseEuropewasinrecession.AndChinalooksprettystrongtoo.
Ifyou’readomesticeconomylikeIndia,whichismainlydomestic,andthesamegoesforIndonesia,youmightdorelativelywell.Butifyou’redependentontrade,andweknowglobaltradeisweak,thosecountriesareprobablygoingtounderperform.
Soitreallydependsonwhatkindofeconomywe’retalkingabout.
Someoptimismexistsinthestockmarket
SFCMarketsandFinance:Howabouttheassetprices?
PaulGruenwald:HousingisveryelevatedintheU.S.rightnow.SooneofthethingstheFedwantedtodo,Ithink,ismoderatehousingprices.Buttheotherthingisthemarket—equitypricesareverysensitive,apparently,totariffs.
We’veseenthisveryclearly:whentariffsgoup,themarketgoesdown;whentariffsarepaused,marketsgoup.Sothere’sthiskindofinteractionbetweenthefinancialmarketsandU.S.policymakers.It’skindofinterestingtowatch.
It’sprettyclearthemarketsdon’tliketariffs,andwhentariffsgoup,themarketgoesdown.SoIthinkthemarket’sexpectingsomekindofstabilizationoftariffs,andthemarketsarenotthatfaroffall-timehighs.Sothere’ssomeoptimismbakedintothoseequitymarkets.
SFCMarketsandFinance:Thegoldpriceisanotherstory.Howdoyouthinkaboutgold?
PaulGruenwald:Goldtendstogoupanddownalot.WhatwedoknownowisthatbecauseofuncertaintyaroundU.S.policy,thereserveaccumulationofdollarshasgonedownabit,andreserveholdersareswitchingintogoldandalsointoeuros.
Peoplebuygoldformanyreasons,butoneofthethingssupportinggoldisactuallyamoveawayfromthedollar.It’snotahugemove,sothedollarisstillthenumberonereservecurrency,butwe’veseensomerotationawayfromthedollartowardgoldandtheeuro.
Goldisalwaysseenasastablestoreofvalue,andwhenmarketsorpolicyarevolatile,goldtendstobesupported.That’spartofthestorybehindthestrengthingoldprices.
SFCMarketsandFinance:Actually,somefinancialinstitutionssaidthegoldpricewillreach$4,000/ounce.
PaulGruenwald:Wedon'tforecastthegoldprice.Ileavethattothebravepeople.
TheU.S.economymightachievea"softlanding"thisyear
SFCMarketsandFinance:Let'stalkaboutthesecondhalfofthisyear,what'stheriskofglobaleconomy?
PaulGruenwald:Let’sstartwiththeU.S.TheU.S.isexpectedtohavea“softlanding”thisyear.Atthebeginningoftheyear,growthwasabout3%,whichisabittoofast,sotheFedhasbeenkeepinginterestratesrelativelyhigh.ThesustainablegrowthratefortheU.S.isabout2%.
Whatwe’reworriedaboutnowisthattheU.S.doesn’tslowfrom3%to2%,butinsteaddropsfrom3%to1%,enteringagrowthrecession,andthenbouncesback.Sowe’reexpectingtheU.S.toslowdown.
EuropehasalreadymadeadjustmentsaftertheUkrainewar,withoilpricesplayingarole.Theeuroandtheeuroareashouldstrengthen.Chinalooksprettystable,sooverallgrowthseemsrelativelysteady.
Emergingmarketsshoulddookay,aslongasoilpricesstaylowandthedollarbehaveswell.SotheU.S.needstoslowdownabit,buttherestoftheworldremainsfairlystable.
It'sgoingtobeunevengrowthstory.Themajoreconomiesareindifferentpositions,intermsofthecycleandexposuretooilpricesandotherthings.
SFCMarketsandFinance:Weareinaworldfullofuncertaintiesandchallenges.Howcanwesustainglobalgrowth?
PaulGruenwald:Getridoftheuncertainties.Ithinkthegoodscenariohassomeresolutionfortariffpolicy.IntheU.S.,wehavetwoschoolsofthoughtabouttheTrumpadministration.
Thefirstviewisthattariffsareatemporarynegotiatingmove,andwe’lleventuallysettleonpermanenttariffrates.Oncetheuncertaintyiseliminated,theeconomycanstartgrowingagain.
Theotherviewisthatthiswillbeakindofongoingnegotiation—likearealityshow—thatjustkeepsgoing.Inthatworld,uncertaintyremainshigh,andthat’sgoingtodampenconsumptionandinvestment.
Sowe’llhavetoseeinthesecondhalfoftheyear:canwereachsomeresolutionontariffsandeliminatetheuncertainty?OrwillweremaininaworldwhereU.S.policyishighlyunpredictable?Andifit’sunpredictable,thatmeansslowergrowth.
SFCMarketsandFinance:Soshouldtheinvestorsbecautious?
PaulGruenwald:I'mnotsupposedtogiveinvestmentadvice,butyouknow,investorsarewatchingverycloselywhat'sgoingonintheWhiteHouse.Marketsdon’tlikeuncertainty—whentheyseeit,theytendtopullback.
Ifwegetcertaintyaroundtariffs,andifwegetsomestabilityintheMiddleEast—particularlybetweenIranandIsrael—bothofthosedevelopmentswouldbepositiveforthemarkets.
Artificialintelligencehasapositiveimpactontheeconomy
SFCMarketsandFinance:Thisyear,theAIinChinaattractedalotofattention.HowdoyouthinkabouttheAIindustryinChina?
PaulGruenwald:AIforusiskindofamedium-termstory.It’shardtoidentifydirectlywhat’shappeningwithAIonaquarter-to-quarterbasis.
Butwhat’sprettyclearisthatbusinessopportunitiesareeverywhere—inChina,theU.S.,andEurope.CompaniesaretryingtofigureouthowtoapplyAItotransformtheiroperations,andthere’salotofpotentialforproductivitygains.
Whatweexpectisthatoverthenext5or10years,we’llseeAI-generatedproductivityimprovementsthatwillhelpboosteconomicgrowth.Thatimpactwilllikelybesharedbetweenfirmsandworkers,thoughopinionsdiffer.
Still,theeconomicsprofessionislargelyalignedthatAIwillbepositive—it’sjustaquestionofhowmuch.Someeconomiststhinktheeffectswillbemodest,whilesomeinvestmentbanksestimatewecouldseeanextrapercentagepointofgrowtheachyearfor5to10years,whichwouldbegreat.
Ithinkit’sstillearlydays,andwe’llhavetoseehowAIisactuallyapplied.Butit’scertainlyanexcitingnewtechnology,andyoucaneasilyimaginethepotentialtodeliveratleastatemporaryboostingrowth—whichwouldbeagoodthing.
SFCMarketsandFinance:SowilltheAIbeourmaindriverforeconomyinthefuture?
PaulGruenwald:Ithinkoverthemediumterm,itwill.
Whenitcomestohowinnovationsimpacttheeconomy,electricityisagoodexample—ittookdecadesforelectricitytofullyworkitswaythroughtheU.S.economy.
AImightprogressfaster,butitwillstilltakeyearsforittofullypermeatethebroadereconomicsystem.
SomesectorswilladoptAImorequickly,whileotherswillmovemoreslowly.Butoverall,IbelieveAIwillactasalong-termtailwind—asustainedboosttogrowthovermanyyears.
Andthat’sgoingtobeveryhelpful.
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