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The Real US Growth Question

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The Real US Growth Question

Tan Kai Xian
25 Jul 2025
Donald Trump and his Treasury secretary Scott Bessent hope their “three-legged” economic agenda of tax cuts, tariffs and deregulation can boost US growth while reducing the debt-to-GDP ratio and keeping inflation low. But Tan Kai Xian argues that these aims are incompatible. Given the deficits implied by the One Big Beautiful Bill, at any reasonable projections of US growth, either debt will rise relative to nominal GDP, or inflation must accelerate.
Whatever Happened To Energy Dominance?

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Whatever Happened To Energy Dominance?

Tom Holland
25 Jul 2025
Six months into Donald Trump’s second term, the administration’s plans for US energy dominance are not going as intended as US consumers face higher prices for gasoline, natural gas and electricity. This is not especially surprising. Moreover, the trajectory of energy policy under the second Trump administration will spell trouble in years to come for the competitive position of the US economy.

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Video: The Asian Trade Landscape Emerges

Udith Sikand
24 Jul 2025
In recent days, there’s been a flurry of trade “deals” between the US and Asian countries, ahead of the August 1 deadline to avoid the Trump administration’s punitive tariffs announced six months ago. Udith unpacks how these framework arrangements are shaping Asia’s macro environment—and what they could mean for markets, particularly the potential for a coordinated regional interest rate easing cycle.

Gavekal-IS

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TrackCoin: Managing Emotions In Crypto’s Wild West

Didier Darcet
24 Jul 2025
At the end of 2022, Gavekal-IS launched a mobile app designed to help cryptocurrency investors navigate the emotional rollercoaster of this volatile asset class. In this report, Didier revisits the tool’s underlying logic and examines what its results reveal about speculative behavior.

Gavekal Dragonomics

Macro Update: New Deal, Same Problems
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Andrew Batson, Dragonomics Team
What’s Really Happening With Manufacturing Capex?
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Thomas Gatley
The Slow-Growth Vision For Property
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Xiaoxi Zhang
Growth Gradually Softens
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Wei He, Dragonomics Team
Infrastructure Is Still The Preferred Stimulus
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Xiaoxi Zhang, Wei He
Why The Job-Market Signals Are Mixed
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Ernan Cui
What’s Happening To Xi’s Commissions?
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Christopher Beddor
Rethinking Technology Funding
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Tilly Zhang
How Long Will The Auto Price War Last?
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Ernan Cui
Next Steps For Stimulus
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Wei He

More research

What Could Restart Dollar Strength?
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Louis-Vincent Gave
Japan’s Flaky Trade Deal
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Udith Sikand
Europe’s Use-It-Or-Lose-It Moment
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August Gudmundsson, Cedric Gemehl
Value In A Sea Of Risk
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Louis-Vincent Gave
The Contradiction At The Heart Of US Money
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Will Denyer
Geoeconomic Monitor: Digital Currencies And Financial Power
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Arthur Kroeber, Tom Holland, Tom Miller
Not Quite As It Seems In France
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Cedric Gemehl
No Liz Truss Moment For JGBs
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Udith Sikand
Video: US Housing Under The Gun
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Tan Kai Xian
The Case For A Massive Rerating Of Asian Assets
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Charles Gave

Gavekal Technologies, Chips

Electricity, Chip Self-Reliance, EV Price Wars

Arthur Kroeber, Laila Khawaja, Tilly Zhang, Ernan Cui
14 Jul 2025
Our analysts explain why China’s electricity dominance guarantees manufacturing dominance; what it will take for China to overcome its deep reliance on imported microchips; how electric vehicle makers will survive a vicious price war; and why Chinese humanoid robots are not ready for prime time. And a book review asks whether it is really true that the US is still the best in the world at deploying new technologies.

Checking The Boxes

Our short take on the latest news

Fact
Surprise
Takeaway

US S&P Global manufacturing PMI fell to 49.5 in Jul, from 52.9 in Jun

Below expected 52.7; services PMI rose to 55.2 in Jul, from 52.9 in Jun

Services offsetting unexpected weakness in mfg; uptick in price component is worrying

ECB left deposit facility rate unchanged at 2%

As expected

With inflation broadly in line with expectations, no urgency from ECB to cut soon

Eurozone HCOB manufactur-ing PMI rose to 49.8 in Jul, from 49.5 in Jun

As expected; services PMI rose to 51.2 in Jul, from from 50.5 in Jun

Mfg to join services in expansion amid ongoing cyclical recovery

Turkey cut 1w repo rate by -300bp to 43%

Cut greater than -250bp expected

Continuing downtrend in inflation opens more room for cuts by CBRT

Test Your Knowledge
After Trump’s announcement last week of a 50% import tax on copper, the race is on to boost domestic supply. How long does it take on average to develop a new mine in the US?
  1. Nine years
  2. 17 years
  3. 29 years
Post Your Answer

Chart of the Week

Week 30, 2025
China’s government promised more fiscal stimulus this year, as well as a different type of stimulus: a shift away from the heavy reliance on low-return infrastructure projects of previous years. But actual bond sales data show only a modest shift, in part towards more support for the property market and financial stability.
Open Chart

Gavekal Research

Essential Reading: A Book For Every Week Of The Year

Gavekal is often asked for a recommended reading list. So, here it is: a book a week that everyone interested in the world of macro investing—whether hoary veteran or eager apprentice—can benefit from reading.

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Webinar: Gimcrack Goldilocks Or The Real Thing?

Arthur Kroeber, Will Denyer, Tan Kai Xian
11 Jul 2025
So far in 2025, the US economy has defied all the worst-case forecasts of looming stagflation. In this Gavekal webinar, US economists Will Denyer and Tan Kai Xian assess the strength and depth of this apparent Goldilocks dynamic, consider the impact of the newly passed Big Beautiful Bill on the US budget, and discuss the implications for financial markets. Gavekal head of research Arthur Kroeber offers updates on the tariff war latest.

Tariff Troubles

Japan’s Flaky Trade Deal
The US-Japan trade deal announced late Tuesday in Washington triggered a powerful rally in Japanese automaker stocks. But the anomalies and distortions implied by the limited details of the deal so far available mean the provisions of this “framework agreement” are unlikely to survive in their current form, warns Udith Sikand.
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Geoeconomic Monitor: Digital Currencies And Financial Power
As US lawmakers aim to fast-track legislation aimed at encouraging the development of privately issued cryptocurrencies, Arthur Kroeber assesses the probability that digital currencies will upend the established US-dollar-based international financial system. Separately, Tom Holland examines the likely effectiveness of US secondary tariffs aimed at curbing Russia’s energy exports, and Tom Miller takes the temperature of the political waters across the Taiwan strait.
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Trump’s Caudillo Economics
The last week has seen a whole kaleidoscope of tariff threats by the US president, targeting everyone from Moldova and Libya to Brazil and importers of Russian commodities. For the most part, financial markets have shrugged these off as bluster. But, warns Arthur Kroeber, Trump’s strongman economic approach is an end in itself; there is no endgame. The long-run effects will inevitably be corrosive.
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Webinar: Gimcrack Goldilocks Or The Real Thing?
So far in 2025, the US economy has defied all the worst-case forecasts of looming stagflation. In this Gavekal webinar, US economists Will Denyer and Tan Kai Xian assess the strength and depth of this apparent Goldilocks dynamic, consider the impact of the newly passed Big Beautiful Bill on the US budget, and discuss the implications for financial markets. Gavekal head of research Arthur Kroeber offers updates on the tariff war latest.
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US economy & markets

The Real US Growth Question
Donald Trump and his Treasury secretary Scott Bessent hope their “three-legged” economic agenda of tax cuts, tariffs and deregulation can boost US growth while reducing the debt-to-GDP ratio and keeping inflation low. But Tan Kai Xian argues that these aims are incompatible. Given the deficits implied by the One Big Beautiful Bill, at any reasonable projections of US growth, either debt will rise relative to nominal GDP, or inflation must accelerate.
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The Contradiction At The Heart Of US Money
President Donald Trump signed the GENIUS Act into law Friday, creating a regulatory framework for US dollar stablecoin issuers, and Congress is advancing two more crypto bills. Meanwhile, back in the slightly more tangible fiat world, Trump is rattling dollar holders by floating the idea of firing Fed Chair Jay Powell. Will examines what these events mean for crypto currencies and confidence in the trusty US dollar.
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Down The Drain
With the US S&P 500 within 0.2% of its record closing high hit last Thursday, the market reaction to the passage the week before of the One Big Beautiful Bill can be characterized as “normal.” But with tax cuts largely priced in, what could now disrupt the US equity market’s march higher?
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When Corporate Spreads Meet Deficits
Despite all the heightened uncertainties so far in 2025, US corporate credit spreads have remained remarkably placid, staying well below their long-term median. KX explores what lies behind this calmness, and concludes, perhaps counterintuitively, that spreads may be set to narrow further.
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China chartbook

Gavekal Dragonomics

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Macro Update: New Deal, Same Problems

Andrew Batson, Dragonomics Team
24 Jul 2025
China’s growth will hold up better than many expected in 2025. But domestic demand is weak, with property a renewed drag, and deflation remains a threat. Despite more stimulus, China still isn’t generating strong nominal growth. In our latest quarterly chartbook, Andrew and the Dragonomics Team assess the state of the economy and outlook for policy and markets.

India chartbook

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India Macro Update: Hold The Confetti

Udith Sikand, Tom Miller
5 Jun 2025
India’s economy is in the early stage of a cyclical recovery enabled by supportive policy settings. Sustaining the positive momentum will, however, be tricky, say Udith and Tom. A continued recovery in domestic consumption is encouraging, but external uncertainty could dampen sentiment and weigh on investment.

Latest video

Gavekal Research

Video: The Asian Trade Landscape Emerges

Udith Sikand
24 Jul 2025
In recent days, there’s been a flurry of trade “deals” between the US and Asian countries, ahead of the August 1 deadline to avoid the Trump administration’s punitive tariffs announced six months ago. Udith unpacks how these framework arrangements are shaping Asia’s macro environment—and what they could mean for markets, particularly the potential for a coordinated regional interest rate easing cycle.

Strategy Chartbook

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Quarterly Strategy Review: 2Q25

Louis-Vincent Gave
3 Jul 2025
In this new quarterly report, Louis assesses the key investment drivers in the preceding quarter and seeks insights about what will impact markets in the next period. He focuses on the broad strategy environment, as well as the outlook for equities, fixed income, and currencies.

Emerging markets

Video: Are EMs Back?
It’s been a good quarter for the broad emerging markets complex. The MSCI EM index has returned almost 7% in US dollar terms, while US equities are down by some -3.5%. So should investors jump on the EM train? Udith points out that there is a wide divergence in the performance of individual emerging markets, and the threat of tariffs hangs heavy over EM corporate earnings. Investors need to be selective.
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Video: Southeast Asia Under Trump 2.0
Global investors are rightly focused on the potential losers from the United States pursuing an aggressively protectionist trade policy agenda, but there may be winners as well. Tom went in search of such economies last week. Today he explains how such “swing states” are likely to perform in an intensified period of great power rivalry between the US and China.
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China Turbocharges EM Investment
As the rich world pulls up the protectionist drawbridge, investors risk missing a bigger story in emerging markets. Here, Chinese outbound investment is rebounding after the fallow Covid years, and is driving a new wave of industrialization that promises to lower the cost of the green-energy transition.
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Why This Time Has Been Different
During past episodes of risk-off volatility, the correlation between emerging market risk assets has shot up. But early August’s bout of market volatility saw a bifurcation in EMs, and no broader macroeconomic spillover effects—which speaks well of the growing maturity of emerging markets as an asset class.
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Europe's economy

Europe’s Use-It-Or-Lose-It Moment
Investor attention is rightly focused on whether a more fiscally expansive eurozone can drive domestic growth in a far tougher trading environment with key partners like China and the United States. In fact, such a future may already be here as capital spending from the European Union’s “Hamiltonian moment” in 2020 shows up in fixed asset investment growth.
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Not Quite As It Seems In France
Prime Minister François Bayrou’s latest budget leaves France caught between a rock and a hard place. On the face of it, spending cuts and tax hikes worth 1.5pp of GDP could tip a sluggish economy into recession to Bayrou's fall. However, Cedric says the economics are not quite what the headline figures suggest, and the politics in Paris do not yet favor Bayrou’s defenestration. For this reason, he says the downside for French asset prices is limited.
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How Concerning Is Euro Strength?
The euro’s strength is causing equity investors to fret and European Central Bank officials to twitch. With the single currency up 12.4% against the US dollar this year, the worry is of squeezed profits and a new deflationary dynamic taking hold. But Cedric and August think a stronger euro will cause neither the eurozone economy, nor its equity market to crash.
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The EU’s Tariff Countdown
As a July 9 deadline nears for the US and European Union to reach a trade deal a Brussels-advocated offramp has been put in the mix. This situation leaves the EU facing three different tariff scenarios. To make sense of them, August and Cedric assess three economic effects that will weigh on European growth depending which outcome plays out.
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Equities

Down The Drain
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An Ever-Evolving Beauty Contest
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Is Deflation Bad For The Stock Market?
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Exports And Equities After The Ceasefire
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Merzschmerz
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What Next For US Equities?
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Fixed income

Down The Drain
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Out With A Bang, Not A Whimper?
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Tax Cuts Versus Tariff Hikes
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Taking Stock Of Fiscal Progress
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The US Funding Problem
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Video: The Anatomy Of A Bond Sell-Off
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From the archives: oldies but goodies

Deficit Deniers Of The World Unite
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Deficit Deniers Of The World Unite

Anatole Kaletsky
In our politically correct age the pressure to bow down before certain popularly accepted and apparently proven “truths” can be overwhelming. In the aftermath of the US elections, two such nostrums are unnecessarily vexing investors—the urgency of deficit reduction and fear of higher taxes. I believe that both of these obsessions will soon be forgotten.
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Are We Entering into Revolutionary Times?
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Are We Entering into Revolutionary Times?

Louis-Vincent Gave
The role of a society’s elite is to rise to the challenges of the times, and find solutions fitting to those times, even if this involves a radical break with the past. But the modus operandi for most leaders is to try and maintain the status quo. But if the problems are large enough, this does not work, and the same challenges reappear until either a solution is found, the elite is replaced by a new elite, or the country, system or civilization disappears.
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The High Cost Of Free Money
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The High Cost Of Free Money

Charles Gave
Perhaps the most famous economic law is the one that there is no such thing as a free lunch. By keeping US short rates at abnormally low levels beyond the financial crisis and as growth bounces back beyond the dreams of the wildest optimists, the Fed increasingly seems to be trying to ‘feed the US economy for nothing’. This is worrying, for extended periods of cheap money typically come back with a hefty price tag.
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