A cycle in progress, with broad divergences

What is the outlook for the global economy? How should we interpret the US administration’s ‘America First’ policy and tariff announcements? The International Monetary Fund has warned of elevated risks to public debt globally – should investors be concerned? Where are the economic opportunities arising from AI?

These were some of the key discussion areas that Michael Strobaek, Lombard Odier’s Global Chief Investment Officer, tackled at a panel discussion at Kasikornbank’s (“KBank”) recent K WEALTH event. The event, titled “Five for 2025: FIVE Themes That Will Shape Global Investment Strategies”, was held in Bangkok.

Lombard Odier, a global leader in wealth and asset management, has been in a strategic alliance with KBank Private Banking, a leading financial institution in Thailand, since 2014. The alliance allows leading high net worth families, entrepreneurs and investors in Thailand, to access a holistic blend of global and local wealth and asset management expertise and solutions.

Photo credit: K WEALTH by KBank 

Global economic outlook: Expansion is set to continue in 2025

Michael Strobaek provided an overview of the global economy outlook, taking into account the potential impacts of US trade policies, China pro-growth measures, and geopolitical tensions.

“We think the cycle of economic growth will continue in 2025,” Mr Strobaek told the event, hosted by Kasikornbank. He said that US growth continues to be supported by strong consumption and sound labour markets, meaning that recession risks are low. US growth is supported by two pillars of spending, consumption and corporate capital expenditure, or capex, Mr Strobaek added. Lombard Odier sees no sign of significant weakening in consumption, since it is driven by steady real wages, and capex , where we have seen announcements particularly in tech and infrastructure.   

Strobaek also noted that while Europe is lagging the US, recent efforts to increase military spending should deliver much needed fiscal stimulus. However, there are still implementation questions, and the bulk of the growth effect would only be felt from 2026. Nevertheless, the situation is evolving, and Europe could become a pillar of world growth next year.

Ultimately, investors’ uncertainties revolve around geopolitics, specifically trade policy and how that will affect companies. The divergence in growth profiles between regions may also lead to divergence in financial market performance.

At Lombard Odier, we still believe that the world will see solid economic growth, despite recent trade uncertainties. Growth-related financial assets should do well, given continued economic expansion in the US, and Europe’s fiscal stimulus plans.

Cutting cycle by central banks to continue but diverge by mid-year

Mr Strobaek said that the uncertainty created by tariffs is negative for economic growth. He suggested that the US is pursuing a higher octane economy at the expense of its trading partners, and that is likely to lead to additional financial market volatility.  

This pattern of high announcements followed by negotiations, and then more moderately implemented tariff levels may continue for some time, Mr Strobaek added. In this environment, investors should focus on risk management in their portfolios, he said, and that broad diversification across regions and sectors is particularly important.

Rising public debt

In light of the IMF’s warning about risks to global public debt, Mr Strobaek discussed possible risks and potential impacts to economic growth and returns on various asset classes.

Mr Strobaek said that in the global rate cutting cycle, lower interest rates are making it easier for governments to finance growing deficits and service existing debt. Nonetheless, the ability to finance debt domestically is more important than the absolute level of debt. Mr Strobaek used the example of Japan, where high debt levels and low interest rates can go hand in hand, because debt is mostly financed domestically. He also noted that Japan is aided by a trade surplus, and with low inflation, Japanese bonds still deliver attractive real interest rates for investors.

Mr Strobaek also commented that private sector savings can offset public spending imbalances, if governments decide to finance their debt domestically. The European Union is looking at this with its initiatives to invest in defence. The region’s private savings rates are high, and Germany in particular has a large current account surplus. Germany’s planned additional debt, which includes investments in infrastructure, could therefore easily be absorbed domestically, and in turn lead to higher potential growth.

Photo credit: K WEALTH by KBank 

Artificial Intelligence – investments are paying off

Artificial Intelligence (“AI”) was a key topic raised during the panel discussion. For Mr Strobaek, the economic impact of AI will depend on how regions invest. There is a race to be at the forefront of AI technology, and also to create sustainable business models. Mr Strobaek noted that capex in the US is currently strong, while with the exception of France, it remains anaemic in Europe. He added that China is mostly investing in producing cost-effective AI models, which may not be at technology’s cutting edge, but could contribute to sustainable business models, including lower prices that boost AI’s adoption rates.

For investors, we believe that diversification is crucial as the overall market environment becomes more volatile.

Our investment convictions

At Lombard Odier, we still believe that the world will see solid economic growth, despite recent trade uncertainties. Growth-related financial assets should do well, given continued economic expansion in the US, and Europe’s fiscal stimulus plans. Additionally, alternative investments, where appropriate, can play an important role in diversifying a portfolio’s sources of returns.

For investors, we believe that diversification is crucial as the overall market environment becomes more volatile. We are convinced that this makes an active investment approach essential, as recent events underline that the balance of global opportunities can shift quickly.