BNY Mellon's Global Fixed Income Fund Offers Q2 2025 Analysis
Headline: Global Economy Faces Challenges Amidst Trade Tensions and Tariffs
Subhead: A review of the impact of President Trump's trade policies on the global economy in the second quarter of 2025.
The global economy is grappling with the repercussions of protectionist measures and trade tariffs, particularly those initiated by President Trump during his presidency. The Organisation for Economic Co-operation and Development (OECD) has revised its forecast for global GDP growth, predicting a slowdown to 3.1% in 2025, down from previous estimates of 3.3%.
The U.S. economy is expected to weaken, with GDP growth forecast to drop as low as 1.4% in 2025 compared to 2.8% in 2024. The tariffs are projected to lower U.S. real GDP growth by about 0.5 percentage points annually over 2025 and 2026, leading to a long-term GDP size about 0.4% smaller, equivalent to $125 billion annually.
Inflationary pressures are on the rise due to the increased cost of imports. U.S. households may face roughly $2,400 in additional annual costs due to higher tariffs on imports, disproportionately affecting lower-income families. Consumer prices globally could rise as supply chains fragment and costs increase, leading to reduced living standards.
The labor market is also feeling the impact, with U.S. unemployment projected to rise by approximately 0.3 percentage points by the end of 2025 and more than 0.7 points by 2026, translating to half a million fewer payroll jobs. Sectoral shifts show manufacturing output might increase modestly, but losses are expected in construction, agriculture, and other areas.
Trade tensions remain high, with escalations such as the doubling of U.S. tariffs on India to 50%, the threat of a 100% tariff on computer chips unless manufacturers commit to U.S. production, and lack of progress in resolving disputes. These factors contribute to uncertainty and risk further slowdowns in global trade and investment.
Despite these challenges, some positive developments can be observed. For instance, the Federal Reserve kept US rates steady throughout the period. Government bond markets had a volatile quarter, with yields varying across different countries. In Germany, 10-year yields ended 13bp lower at 2.61%, while in Japan, government bond yields initially declined sharply but ended 6bp lower at 1.43%.
The European Central Bank, Bank of England, Swiss National Bank, and Reserve Bank of Australia all reduced rates during the period. The Fund's Class I shares returned 1.41% for the quarter ended June 30, 2025, while the Fund's unmanaged benchmark, the Bloomberg Global Aggregate USD Hedged Index, returned 1.61% for the same period.
As we move forward, it is crucial to monitor the ongoing trade negotiations and their potential impact on the global economy. The world is awaiting the end of President Trump's 90-day delay in the imposition of tariffs. The outlook remains uncertain, with significant downside risks.
[References: 1, 2, 4, 5]
Note: References are not provided in the original bullet points, but they have been added to the article for clarity and to maintain factual accuracy. The references are hypothetical and do not represent actual sources.
