It is perhaps a fair comment that financial journalists are more prone to unwarranted pessimism than delusional optimism. There are reasons for this. A stopped clock is correct twice a day; a commentator who predicts crises at every turn may be remembered for the one disaster they called correctly rather than ones they hallucinated. Bad news also just makes for more compelling headlines than good news.
There is no need to expound the bearish case for the global economy in full. It has already been fully covered in these pages and elsewhere. One only needs to have taken a cursory glance at headlines this year to see evidence of wars raging, famine spreading and economies and labour markets slowing. Countries all over the world, but especially the US and in Europe, are creaking under ever greater and more expensive debt burdens. The independence of the world’s most important central bank — the Federal Reserve — is under attack, while the world’s most powerful man pursues an illogical and self-destructive programme of tariffs that is expected not only to harm the economy of the US, but also its trading partners.
Yet, nothing in economics is ever predetermined. While the risks facing the economy are considerable, there are also compelling reasons to be optimistic.
The US: corporate profitability and investment remains strong
First, the US economy is not collapsing, quite yet. Capital expenditure remains robust, and while admittedly it is largely driven by AI spending on data centres it is not entirely dead elsewhere. Corporate profits, too, are growing steadily. While these are admittedly overwhelmingly based on the Magnificent 7 tech hegemons (with the exception of Tesla), profitability has not collapsed even in the mid-cap space.
In the most recent quarter, S&P 500 operating income (excluding financials) rose 9% year-on-year, with revenues up 7%. Even consumer staples, a sector under strain, have eked out modest gains. Historically, recessions coincide with falling profits. That companies continue to grow earnings suggests the economy may be stronger than the headlines and labour market data imply. If corporate performance is indeed a leading indicator, the absence of declining profitability weakens the case for an imminent downturn.
Then there are the (admittedly mixed) effects of Trump and Maga on the economy. The deregulatory zeal of this extreme right populist administration is reshaping the economic landscape. From cryptocurrencies and stablecoins to financial services, rules are being cut back. Paul Atkins, Trump’s appointee to head the Securities and Exchange Commission, recently declared that the commission would “not bash down doors for technical violations”.
This shredding of regulations designed to protect consumers and prevent excessive risk taking may increase the risk of a major crisis in the long term. But, in the short term at least, it should provide a boost to the economy by encouraging business activity and creating space for entrepreneurs, whether honest or just opportunistic.
But the most obvious reason to feel bullish is what happens on Wednesday, 17 September 2025. Faced with a slowing labour market, rising unemployment and elevated if not rapidly increasing inflation, this week the Fed is widely expected to cut interest rates for the first time since December 2024.
This may not help the housing sector much, as long-term rates may stay high on fiscal concerns, keeping mortgages expensive. But it could be a meaningful boost for small businesses, which should see working capital costs fall, as well as consumers, who theoretically should see their credit card bills decrease.
Europe: A tale of two economies
Across the Atlantic, Europe presents a divided picture. Several of its largest economies are undeniably struggling. The UK economy has spent the decade since Brexit mired in stagnation, with the hapless Labour government powerless to crank it into movement. France is the latest “problem child” of Europe, with successive governments collapsing under the pressures of trying to sort out its fiscal woes. Germany, after years of energy shocks and industrial weakness, is battling with an automotive sector struggling to make the shift to EVs and the loss of China as a dependable export market.
Yet despite these woes the EU economy is remarkably resilient. The eurozone’s 20-nation economy expanded by 0.1% in the second quarter, defying expectations of a contraction and showing hardiness in the face of trade and geopolitical stress. The European Central Bank has begun cutting rates, even if president Christine Lagarde paused at last week’s announcement. Unemployment is at record lows, and while this could signal that the only way is up, until now there have been no signs of softening such as that in the US. Investment from the EU, in the form of the €750-billion NextGeneration EU post pandemic relief package, continues to filter through the economy and is starting to show in the data, particularly in the largest beneficiaries such as Italy.
But perhaps the greatest reason for optimism is that finally there are signs that the European Union is serious about making the long overdue reforms needed to “complete” the single market. The word being thrown around in the corridors of the Berlaymont is the need for “competitiveness”, with a particular focus on getting rid of internal barriers to trade and building a true savings and investment union. Simply put, such is the dysfunction of the EU that not much needs to happen for its economy to shift into a faster gear.
China: The bigger question mark
China remains the biggest uncertainty in the global outlook. August data revealed slowing momentum across the board. Industrial output, retail sales and investment all underperformed expectations, delivering the weakest readings since the pandemic. Industrial production grew just 5.2% year-on-year, retail sales rose 3.4% — down from 3.7% in July – and fixed-asset investment nearly stalled, advancing only 0.5% in the first eight months of the year.
The weakness highlights the challenges of rebalancing China’s growth model. The property sector remains fragile, and the government has struggled to shift households from saving to spending.
Still, Beijing retains significant policy tools. More stimulus is likely, and there are early signs of stabilisation in housing and of falling savings rates. These may not resolve structural weaknesses, but they can buy time and cushion near-term growth. It is perhaps for this reason that the Shanghai Composite equity index is trading at a more than 10-year high.
South Africa: A cautious note for optimism
There is even a cautiously bullish case to be made for the South African economy. Despite data showing grim business and consumer sentiment, GDP numbers last week showed the economy expanded at the fastest pace in two years in the second quarter, lifted by a strong rebound in manufacturing and mining.
Gross domestic product grew 0.8% in the three months through June, compared with growth of 0.1% in the prior quarter. That beat the 0.6% median estimate of 13 economists in a Bloomberg survey.
This better-than-expected outcome prompted Goldman Sachs and Oxford Economics to raise their 2025 growth forecasts to 1.2% and just above 1%, from 1% and 0.8% respectively.
Risks of yet another downturn remain. US tariffs threaten exports, and if the global economy does go into a recession South Africa will not be spared.
Yet, if — miraculously — the GNU does manage to build on some recent (albeit limited) structural reforms, then there is potential for an upside. Investors will be hoping the recent reforms on freight, rail, boosting power generation and to the labour market are a harbinger of things to come.
Opportunities as well as threats
We all know the global economy is slowing. But what is less clear is where the end destination is. Are we merely in the final stages of post-pandemic normalisation? Experiencing a temporary shock to growth from Trump’s tariffs? Or heading for recession?
For markets showing stretched valuations in equities and fixed income, there is more obvious downside than upside. But it is important to see opportunities as well as threats. Despite the gloom pervading the world, or perhaps because of it, there is cause for optimism yet. DM
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