The Decisive | Season 5 Ep.7 - Resilience in the Global Economy: Growth Amid Volatility

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Kristen Hallam:

You're listening to The Decisive Podcast. Insights and analysis to empower confident decision-making. Hello and welcome to The Decisive Podcast. I'm your host, Kristen Hallam. Markets came into 2026 braced for shocks—geopolitics, policy uncertainty, and lingering questions about growth. But the data has told a more complicated story: The global economy is bending, not breaking.

Purchasing manager surveys and broader activity gauges are still flashing resilience, suggesting the world is carrying solid momentum even as volatility reasserts itself. The episode that follows is taken from our client webinar on the global macroeconomic outlook, recorded on February 10. This excerpt features Ken Wattret, Vice President of Global Economics at S&P Global Market Intelligence, who has worked as an economist in financial markets for over three decades. Ken unpacks the crosscurrents shaping the macroeconomic landscape right now, starting with commodities, where the signal has been impossible to ignore. At the same time, the US dollar has been under real pressure. Yet the fundamentals still point toward gradual depreciation. That matters everywhere—from global financial conditions to commodity pricing to the breathing room it can create—or remove—for emerging market central banks. Layered on top is a renewed rise in trade policy uncertainty, as tariff talk returns after a late 2025 stretch that looked calmer on the surface. And while businesses appear to be adapting, the risks are accumulating: geopolitical flashpoints, potential trade disruptions, and the possibility that a labor market turn could become the catalyst that changes the growth narrative.

Finally, we turn to Washington, where markets have been recalibrating around a potential shift at the Federal Reserve. With Kevin Warsh's nomination as the next chair influencing expectations, the question becomes: What does tight mean in the next phase of the cycle? If you're trying to make sense of why growth looks steady while headline risks keep rising, Ken pulls the threads together. Let's listen to his take.

 

Ken Wattret:

Hello everybody and welcome. I'm Ken Wattret. I lead the global economics team at S&P Global Market Intelligence. It's been a very eventful start to 2026 with various geopolitical issues and related uncertainties having a major impact on global financial and commodity markets. The impact on economic conditions has been much less pronounced, at least so far, and we'll come back to that shortly. But in the commodity markets, obviously one of the standout developments that we saw in 2025 was the surge in precious metals prices. For gold, this reflected a combination of factors, including rising demand from some central banks, concerns about a potential resurgence of inflationary pressures, and worries about possible dollar debasement. Gold prices subsequently soared in January this year, peaking at around $5,500 per troy ounce, which is equivalent to a year-on-year increase of over 100%.

And at the same time, not unrelated, we had the US dollar under significant downward pressure in January. The narrow nominal effective dollar index known as the DXY, it fell to a 4-year low in the second half of last month. Now, as the DXY is calculated based on the movements of only 6 currencies against the US dollar, and it has an exceptionally high weight for the euro of close to 60%, its swings tend to be a bit more pronounced than those of other trade-weighted dollar indexes. Nonetheless, those other indexes were also coming under downward pressure in January, resuming the downward trends that were evident in the first half of 2025 amid some major US policy shifts, including obviously on tariffs.

Now, late in January, we had President Trump announce the nomination of Kevin Warsh for the next Federal Reserve chair, and we saw a swift and pronounced about-turn in gold prices and, initially, at least, from the dollar. Now, Kevin Warsh has been a prominent advocate for a reduction in the size of the Fed's balance sheet, and he's perceived to be less inclined than some other possible candidates towards inappropriately low levels of US policy rates. So that was the rationale behind the turn in those markets.

Now, looking forward, despite the dollar's, you know, temporary rebound, our view remains that various fundamental factors will continue to favor more depreciation, albeit more gradually than we saw in January. Those factors include the US's persistent external deficits and the still elevated level of the dollar in trade-weighted terms. Now, the implications of dollar weakness for the rest of the world are important. For emerging economies, local currency strength adds to the case for extending monetary policy easing cycles, which is a support for growth. For economies struggling to generate growth, including some in Western Europe, the dollar's weakness is much less welcome. Now, January also saw measures of trade policy uncertainty start to rise again. You'll recall these measures, I'm sure, from 2025. We had a surge in trade policy uncertainty in the spring of last year following the initial round of US reciprocal tariff announcements.

They subsequently moderated following various framework trade agreements being agreed with the US, and tariff-related concerns eased accordingly. Now, the measure that we're showing here declined in each of the last four months of 2025, and it fell to its lowest level since prior to the US elections in November 2024. But in January, amid lots of talk about potential additional tariff increases from the US administration, we saw uncertainty rebound. Now, amid all of this uncertainty and market volatility, you know, one might have expected to see some negative spillover effects onto economic conditions. However, based on the signals that we've had from our PMI figures for the month of January, that hasn't really been the case. The Global Composite Output Index, for example, which as we've mentioned previously, is a pretty good bellwether for global growth momentum, that actually improved in January. And the two key subcomponents, the manufacturing and services, they both improved as well. Now, that continues the trend we think that became increasingly apparent over the course of last year, that although we have all of this noise and uncertainty, economies are becoming more accustomed to it and shrugging those concerns off.

Now, the recent signs of resilience that we've seen in the PMI data are supportive of our base case of annual real GDP growth rates in most major economies and regions remaining pretty solid in 2026. We expect some moderation in part due to the unwinding of last year's tariff front-loading effects. But in general, the signals that we saw in the January PMIs, we expect to be kind of continued as we progress through this year. Now, this being said, we need to keep a little bit of perspective here because the PMIs are still generally indicative of trend or slightly subtrend growth rates in most major economies. And while the composite index globally improved in January for, for the G3, for the US, for mainland China and the euro area, the PMIs didn't worsen, but they didn't improve significantly either. They went broadly sideways. Now, we don't want to appear complacent either, as there are plenty of risks that could lead to materially weaker outcomes than we're forecasting growth-wise. Those risks include some of the obvious things, you know, further geopolitical shockwaves, including escalations of military conflicts, potential supply disruptions.

On the trade front, the US is actually implementing significantly higher tariffs, not just talking about them. Possible corrections in asset prices, including for tech stocks in particular. Upward pressure on sovereign bond yields given the poor fiscal backdrop. You know, we've seen some localized pressures in 2025 in that respect. And another area of potential weakness, deteriorating labor market conditions.

 

Kristen Hallam:

Thank you for listening to the Decisive Podcast from S&P Global. Please subscribe and join us for next week's episode. Until then, stay curious and stay informed.