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Investing.com - Risks to global growth are rising, partly because heightened uncertainty around U.S. President Donald Trump’s tariff plans has increased the likelihood of a future slowdown, according to analysts at BofA.
Worries over the impact of Trump’s push to place levies on friends and adversaries alike have ticked higher in recent weeks, with analysts particularly citing murkiness in the economic outlook due to a near-constant stream of on-and-off tariff pronouncements from the White House.
On Thursday, the benchmark S&P 500 slid into correction territory, trading more than 10% below its peak reached only last month.
In a note to clients, the BofA analysts noted indications of "softening" growth, with a tracker of new orders at global firms sliding to a five month low in February. Growth projections also point to a slide in the global purchasing managers’ index -- a gauge of business activity -- down to contraction territory by the middle of 2025, the brokerage said.
"[O]ur economists [are] warning about growing downside risks to their U.S. growth projections on the back of elevated policy uncertainty and risks of fiscal retrenchment, while they are projecting a slowdown in China growth in part due to U.S. tariffs," the analysts wrote.
Markets have begun to price in the expectations for softening growth, with global equities declining by 7% since last month, the analysts added. However, they flagged that the repricing could have "further to go."
Should global economic activity slow as anticipated, a more than 10% downside in European equities would be implied, the analysts said, noting that this would leave them "negative on the market."
"On a relative basis, European equities should be more sheltered as the Euro area moves from being a relative weak spot to a place of relative stability, but after 15% outperformance since December, we think that narrative is already priced," they said.
European small-cap names, as well as the chemicals and semiconductors sectors, are the "most attractively priced" cyclical hedges against a potential downturn, they argued.