SSGA: What if Europe surprisingly rebounds?

29 januari 2025

Like every year, State Street Global Advisors considers Grey Swan events - some less likely, but still possible, scenarios that could move markets, if they come to pass.

'In a world where market outcomes can often defy expectations, preparing for those less likely — but potentially significant — events like our Grey Swans, can empower investors to stay ahead of the unexpected. We assess a number of less probable Grey Swan scenarios and consider their potential investment implications,' Lori Heinel, Global Chief Investment Officer, says.

Here State Street Global Advisors' six Grey Swans that could move markets in 2025:

1) A Surprising Reset in Europe:

• Trump’s administration squeezes Europe on trade, energy, and defense, but successfully de-escalates the war in Ukraine and helps bring about further calming of the wars in the Middle East. This triggers a shift in sentiment across the continent and the risk perception of global investors. 
• The German national election in late February delivers a new government with a mandate to reform the “debt brake” and promote growth, surprisingly deliver a fiscal impulse of nearly 2% of GDP while also implementing supply-side growth reforms.
• Continent-wide boost in defense spending, a sector that has a particularly high fiscal multiplier given that most of the production chain is regional. This also translates to higher imports of US arms, but alongside commitments to large-scale purchases of US energy on a longer-term basis it also helps Europe avoid a lengthy trade war with the US. 
• Upward economic growth revisions for both Germany and the rest of the eurozone also help to stabilize fiscal stress in France, facilitating the passing of a budget that enjoys market confidence.
• By the end of the third quarter, forecasts for growth and bond yield differentials for the US and Europe have narrowed, underpinning a euro rebound and a resurgence in European equity market performance. 

2) China and an Emerging Markets Renaissance: What if the Chinese government really gets serious about delivering a strong reform? This, more than anything, could bring new life to the emerging markets asset class.

3) The 2020s, the new 1920s - or 1970s: Are we in the new “Roaring Twenties”, with lower regulatory barriers for business, but with policy mis-steps that proved disastrous? Or a repeat of the 1970s, with stagflation and low economic growth — but where tough policy choices ultimately usher in decades of prosperity?

4) A Quantum Breakthrough: A transformative breakthrough in quantum computing research resets expectations around the timing and scalability of the technology - creating an urgency for the financial services industry.

5) Power Disruption in the US: Whether by accident, natural disaster, or malicious design, a major disruption leaves a significant section of the US without stable electricity. This would generates enormous ramifications for the US and send its economy into a technical recession.

6) A Trump Plaza Accord: President Trump uses the threat of tariffs to force a coordinated intervention by the US, European Union, United Kingdom, Japan, and China to weaken the US dollar and improve the US trade balance — similar to the Plaza Accord in September 1985. This would have knock-on effects for US assets and beyond.