In a year dominated by uncertainty so far, with geopolitics, trade tensions, and interest rate uncertainty affecting markets, it’s easy to continue to remain focussed on the risks. But upside surprises are also possible too!
The prospect of higher tariffs under a second Trump administration is weighing on sentiment today in US stocks. But political and economic pressures could push him toward a more moderate approach. While financial markets have reacted nervously to protectionist talk, what really moves the needle for voters, especially Republican-leaning ones, is consumer confidence. And that has started to soften as expectations for future inflation tick upward.
If new import levies begin to hit household budgets, the resulting public frustration could prompt Republican lawmakers or the White House itself to revisit the plan. After all, US consumers are still adjusting to a sharp rise in prices since the pandemic, and appetite for further cost increases may be limited.
Trump has a history of tweaking his trade stances, delaying measures, softening the impact, or making selective exemptions. Even a partial shift in rhetoric or timelines could ease investor concerns and slightly lift forecasts for global growth by reducing the expected drag from trade tensions. It is quite possible we could see softer than expected tariffs later this year, and that would be a major boost to current weak sentiment.
Moving to Europe, is there potential upside here? European economies, especially Germany, are already in the spotlight due to increased public investment and higher defence budgets. But there are reasons to believe growth could surprise further to the upside.
Equity markets in Europe have performed well in 2025, and geopolitical developments, including threats to NATO and tariffs from the US, have sparked a sense of urgency across the continent. This may bolster confidence among businesses and households, driving real economic activity.
Consumers in the Eurozone still have more room to spend too, with household saving rates remaining well above pre-pandemic levels. A modest shift in sentiment could unlock this capital, supporting domestic demand. Meanwhile, rising asset prices and stronger capital inflows could encourage companies to move forward with projects that were previously on hold.
Defence spending is also an important variable here for Europe too. A recent estimate from Goldman Sachs suggests aligning with Russia’s pace of military investment could mean over €160 billion in annual spending in Europe. If countries focus on research and development rather than equipment imports, the positive effects on growth could be larger than expected and more sustained too.
In the geopolitical sphere too there are reasons to think optimistically. A ceasefire in Ukraine could be a major boost to economic confidence. If gas prices fall as a result and risk appetite improves, eurozone GDP could get an extra 0.5% points lift annualised, according to some projections.
Asia too offers sources of growth upside to current expectations. Investors have grown cautious on China for some time now, but the country still has the potential to deliver positive surprises and those would ripple across the global economy.
Confidence in the private sector appears to be improving in China now. Signs of renewed collaboration between the Chinese government and business leaders, coupled with stimulus programs and progress in the tech sector, such as the leap forward made by AI firm DeepSeek, are all encouraging. Foreign investment in Chinese stocks is also on the rise.
And let’s not forget technology! Artificial intelligence could start to make a meaningful difference soon to the profitability and productivity of the private sector. If adoption accelerates, it could continue to stimulate more infrastructure investment, especially in data centres and digital services.
These scenarios depend on a range of variables, including policy decisions, geopolitical developments, and changes in sentiment, all of which are hard to predict. But thinking through how things might turn out better than expected is a worthwhile exercise, especially in a landscape where economic narratives are constantly evolving.
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