“We are in a new era – an era that will define the economic and investment world for decades to come,” says Vismara. “This will be characterised by greater volatility driven by tariffs, and changes in security arrangements, leading to a huge increase in defence spending.”

Here, he outlines some of the factors likely to influence the global economy and markets.

Tariffs: Vismara notes Donald Trump’s tariff policy could disrupt US growth in the short term. But he says the impact remains uncertain, given we have not seen the full suite of policies. It is clear, however, that the effective tariff rate the US has imposed on imports from the rest of the world is at levels not seen since early in the 19^th century. 
 

Growth: Vismara observes that US policymakers, including through the Department of Government Efficiency (DOGE), are seeking to reduce the economy’s reliance on public spending. This includes moving leverage from the public to the private sector and lowering interest rates to enable that to happen.

Inflation: Vismara sees inflation remaining persistent, with core services inflation still strong and goods inflation increasing due to tariffs. He thinks the US faces the greatest inflationary pressures due to tariffs. Europe’s exposure to tariff-related price pressures is more limited. But Vismara says defence spending could act as an inflationary pressure later in 2026.

Policy cycle: Central banks are still in a loosening cycle, albeit one that has slowed because of sticky inflation. As such, they are unlikely to rush interest rate cuts despite weakening growth. Vismara expects the European Central Bank (ECB) to cut quicker than the Federal Reserve (Fed), but he suspects this could be tempered by the spending package announced by Germany¹. The Fed appears to be in “wait-and-see mode”, faced with above target inflation and uncertainty around the impact of tariffs.  Compared with the ECB, any Fed cuts could be more gradual and come later in the year, adds Vismara.

Asset class view

Fixed income: Vismara expects higher interest rates will be a permanent feature, with increased volatility due to supply and demand shocks. He observes how after a Fed hike it is typical to see a fall in long-term interest rates, but rates are higher than they were when the last Fed hike happened. He adds the combination of higher long-term interest rates and volatility presents opportunities for tactical decision-making in fixed income.

Equities: The US market is seeing some headwinds in the near term as trade policy, reduced fiscal support and political uncertainty could impact consumption and capex. Europe, however, could benefit from Germany’s long-term spending plan from 2026 onwards. While the US remains strong in the long run, Vismara believes short-term volatility presents opportunities for repositioning in both the US and European markets.

“We are living in an era of radical uncertainty. It is an era in which cycles will be disrupted, it is not going to look like anything we have lived through recently. We must get used to and adapt to this new world of change,” Vismara concludes.