The United States may face a recession

The United States may face a recession

As predicted, the new US administration has moved towards tariff hikes and spending cuts, which is causing the economy to slow down, analysts at OTP Bank highlight in their recent quarterly investment strategy. Economic and political developments are also affecting investment, with US equity markets starting to correct noticeably in recent months, partly due to uncertainty over the Trump administration's actions. There are, of course, good investment opportunities to be found in this environment - you just have to look a little harder.

Budapest, April 7, 2025 - Many economic analysts have expressed concerns about Donald Trump's presidency, partly because of the previously experienced unpredictability and partly because of the already foreshadowed threats of a tariff war. Some of these fears have already been confirmed, as the new president has moved swiftly to impose tariffs and cut public spending since his inauguration in January.

These will slow down the growth of the US economy, a fact of which the overseas leadership is well aware, according to OTP Bank analysts. However, they will not change their economic policies until they see more serious signs of a recession in the economy. Slowing economic growth could prompt the Federal Reserve to cut interest rates more aggressively, by 50-75 basis points this year and by a further 100 basis points in 2026.

Positive trend in the European economy

"Contrary to the noticeable slowdown of the US economy, growth in the Eurozone has risen from the previous stagnation to around 1%. This is still modest, but at least there are some signs of a positive trend thanks to consumption, spending growth and services exports," said Gergely Tardos, head of OTP Bank Analysis Centre.

The easing of fiscal rules seems evident from both political and economic policy perspectives. It would lead the Eurozone to spend an extra 1-2 percent of GDP on defence and infrastructure over a few years, and Germany even more. This could directly boost GDP growth in 2026 and indirectly boost confidence, which will already have an impact on growth in 2025. New US tariffs, even if they reach 25%, can only slow economic growth; a recession is highly unlikely, the analysis adds.

According to analysts, disinflation may return in Europe after a temporary pause, but it remains questionable whether central bank targets will be met in developed countries. Looking ahead, developed central banks no longer need to focus on raising inflation from below to the 2% inflation target, but on bringing it down to the target.

Where to invest in the stock markets?

After the steady rise in US equity markets over the past few years, the correction expected by many has begun, but so far it has not reached the pain threshold where US economic policy starts to change in a favourable direction, say experts at OTP Bank. They added that until such a move is made, neutral equity exposure is warranted as markets remain expensive, counterbalanced for the time being by favourable profit dynamics. They believe that a new local low in the US equity market could still come, but they do not expect a major bear market.

In emerging markets, uncertainty over the weakening dollar is helping regions that would otherwise be cheap, but stronger profit dynamics would be needed to drive further gains. Of the regions covered, Central and Eastern Europe remains the cheapest: profit expectations are improving and the end of the war between Russia and Ukraine and, by extension, the improvement in the Eurozone's growth prospects, could provide further upside.

Preparing for stock market turbulence

In the current situation, especially with the unpredictability of Trump's economic policies, long-term bonds may still provide a safe haven in times of rising equity market volatility. Analysts favour US long bonds over the Eurozone, but would avoid corporate bonds.

In commodities, the picture is very mixed, with no obvious trend. OTP Bank experts are currently neutral on oil, but precious metals and copper remain a good investment.

Analysts also identify a few more specific investment opportunities in the strategy, which they see potential for the longer term. These include the technology sector, which has become an investor favourite in recent years and has strong fundamentals despite the correction. The utilities and healthcare sectors could also provide good buys, while the real estate sector is underpositioned and would be helped by a possible soft landing of the US economy. "With a positive outlook for copper and uranium, mining companies could be a good longer-term investment," says Dávid Sándor, Head of Multi Asset Analysis at OTP Global Markets, who sees potential for gold mining companies benefiting from the rise in gold in the commodities market even after the significant rise.

Within the equity markets, not overheated mid-cap US companies with attractive valuations may offer good opportunities. Outside the USA, the Japanese or Latin American markets are worth a look, while the previously mentioned favourable outlook for Central and Eastern Europe should be traded primarily in the Polish market.

The United States may face a recession

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