PESTLE & MORTAR 1 May 2025

#1

U.S. Going Towards a Recession

A Reuters poll conducted from April 1–28, 2025, among over 300 economists, reveals a significant increase in the perceived risk of a global recession, largely due to U.S. President Donald Trump's sweeping tariffs on all imports. Initially, expectations were for robust global economic growth, but these tariffs have led to a sharp decline in business sentiment and financial market volatility. About 92% of surveyed economists viewed the tariffs negatively, with none citing a positive effect. Global growth forecasts for 2025 have been reduced to a median of 2.7%, down from 3.0% in January, alongside cuts for 28 of 48 individual economies. Countries like Mexico and Canada saw substantial forecast downgrades, while China and Russia remained steady. Additionally, over 60% of respondents now believe there is a high or very high risk of recession this year. Concerns about stagflation are mounting, as tariffs may inflate prices without spurring growth. Most major central banks are also expected to miss their inflation targets for 2025, signaling persistent global economic uncertainty. Subsequently, the Bureau of Economic Analysis found that GDP declined in the U.S. in the first quarter of 2025 by 0.3 percent, following a 2.4% increase in the fourth quarter of 2024. This strongly indicates that the poll is correct. This downturn was primarily attributed to a significant rise in imports a reduction in government spending. These factors were partially offset by increases in private investment, consumer spending, and exports. Inflationary pressures also intensified during this period. The price index for gross domestic purchases rose by 3.4%, compared to a 2.2% increase in the fourth quarter. The Personal Consumption Expenditures price index, a closely watched inflation gauge, increased by 3.6%, up from 2.4%. Excluding food and energy, the core PCE price index climbed by 3.5%, indicating persistent inflation across a broad range of goods and services.

#2

Russia Rearming, Preparing to Challenge NATO

Russia is quietly undergoing a significant military expansion along its western border, particularly near Finland, in what Western officials view as long-term preparation for potential confrontation with NATO. Even as global attention remains fixed on the war in Ukraine, Russian military engineers are building new army headquarters, expanding troop housing, and upgrading transportation infrastructure, including rail lines near the Finnish, Norwegian, Estonian, and Latvian borders. Petrozavodsk, a city just over 100 miles from Finland, is emerging as a key hub for these developments. This buildup coincides with Russia's efforts to increase its military personnel to 1.5 million, up from one million pre-war, and boost defense spending to over 6% of GDP, far exceeding NATO averages. Russia’s arms production has accelerated beyond pre-invasion levels, with main battle tank output rising from 40 to nearly 300 units annually, and artillery and drone manufacturing also surging. Much of this new equipment is not being sent to Ukraine but reserved for use in Russia and along NATO’s eastern flank. Senior U.S. and European military leaders, including Gen. Christopher Cavoli and the Danish intelligence agency, warn that Russia could rebuild its forces to a level capable of launching broader European conflict within 2–10 years, depending on the scale. While President Trump has downplayed the threat of Russian aggression beyond Ukraine, European leaders and defense officials are taking the buildup seriously. NATO members, particularly in the Baltics and Poland, are strengthening defenses by installing tank barriers, laying mines, and withdrawing from treaties that ban certain defensive weapons. Finland, a recent NATO entrant, is closely monitoring Russian infrastructure development near border crossings, as satellite imagery shows new railheads and storage units positioned for potential mobilization. Russia is also seeing a surge in military recruitment, driven by substantial signing bonuses and enhanced veteran benefits. Estimates suggest 30,000 to 40,000 recruits are joining monthly, allowing Russia to both sustain operations in Ukraine and build fresh units at home. Many of these new recruits will receive modern equipment, while older, Soviet-era arms continue to be used on the Ukrainian front. Strategically, Russia is re-centralizing its military command structure, integrating routes with Belarus and concentrating forces in the Leningrad and Moscow military districts. The Zapad 2025 military exercises, expected later this year, will likely demonstrate Russia’s capabilities along the NATO border as a show of force intended to pressure Europe into reconsidering the post-Cold War security architecture. Ultimately, the Kremlin appears to be leveraging its military revival not only to reassert influence in Eastern Europe but also to challenge NATO cohesion and Western resolve. Moscow's strategy blends deterrence, symbolism, and a long-term buildup, signaling that even if hostilities in Ukraine subside, Russia is preparing for a broader strategic competition with the West.

#3

EU Faces Economic Pressure from Stronger Currency

Following President Trump’s sweeping tariff announcement on April 2, the euro has surged approximately 10% since early March, reaching a record high on a trade-weighted basis. This appreciation, fueled by a weakening U.S. dollar and increased fiscal spending in Germany, poses significant challenges for Europe’s export-driven economy. While a stronger euro signals market confidence, it makes European goods more expensive abroad, particularly in the United States that is a critical destination for many European firms, thus eroding competitiveness and squeezing profit margins. Analysts estimate that the currency shift could reduce corporate earnings by 2–3%, with multinational firms in the STOXX 600 index, which generate around 60% of their revenue from international markets, bearing the brunt. Industry leaders like Unilever, SAP, and L’Oréal have already reported negative effects, and automakers are especially strained by the dual pressures of rising tariffs and Chinese competition. In response, firms are ramping up currency hedging strategies, though persistent volatility and policy uncertainty complicate risk management. The European Central Bank (ECB), acknowledging these headwinds, will likely cut interest rates below the neutral threshold to counteract deflationary pressures and protect growth. ECB policymaker Olli Rehn emphasized the need for flexibility in monetary policy, warning that U.S. tariffs pose a downside risk to eurozone inflation and could warrant more aggressive easing. While Rehn also called for regulatory simplification to ease burdens on banks, he reaffirmed the importance of strong capital buffers to maintain financial stability. Overall, the combination of a strong euro, U.S. protectionism, and subdued inflation raises recession risks in key economies like Germany and will likely require both monetary and fiscal countermeasures to stabilize Europe’s economic outlook.

#4

China Starting to be Impacted by Trade War

Amid escalating trade tensions with the United States, China's economy is exhibiting signs of strain, particularly within its manufacturing sector. In April 2025, the official Purchasing Managers' Index (PMI) declined to 49.0, indicating a contraction in factory activity and marking the lowest reading since December 2023. This downturn is largely attributed to a significant drop in new export orders, which fell to 44.7, the weakest since December 2022, as U.S. importers reduced orders following the implementation of President Trump's 145% tariffs on Chinese goods.  Despite these economic headwinds, Beijing has refrained from introducing new stimulus measures, opting instead to advance existing 2025 plans. The Politburo has pledged support for affected businesses and workers but has avoided additional deficit spending, aiming to project economic resilience and avoid appearing reactionary. This cautious approach, however, has led to investor disappointment and a 3% decline in Chinese real estate stocks.  China is also intensifying its propaganda efforts to counter U.S. pressure. Utilizing Cold War-era imagery and AI-generated content, Beijing is conveying a message of defiance, emphasizing that yielding to U.S. demands would be tantamount to "drinking poison." Foreign Minister Wang Yi criticized the U.S. trade approach as a regression to "the law of the jungle," reinforcing China's stance of resistance. Economically, with exports accounting for a significant portion of China's GDP, the sharp decline in export orders threatens to slow economic growth, potentially necessitating more aggressive domestic stimulus measures in the future. Geopolitically, the deepening rift between the U.S. and China is extremely likely to lead to a realignment of global trade partnerships, as countries and corporations navigate the complexities of a bifurcated global economy.

#5

Forecasting For Businesses Has Become Increasingly Difficult

A growing number of major U.S. and European companies, including General Motors, JetBlue, Snap, Volvo, and UPS, are withdrawing or scaling back earnings guidance due to extreme uncertainty stemming from President Trump’s volatile trade policies. Many firms are unable to predict future performance as shifting tariffs disrupt supply chains, dampen consumer demand, and obscure market conditions. GM and Volvo cited confusion around automotive tariffs, while JetBlue reported weakened travel demand. UPS noted it had consulted with top clients, all of whom were still scrambling to determine how to absorb or offset new tariff costs. Across industries, executives report that planning for the future has become nearly impossible, leading companies to cut spending, lay off workers, and model multiple economic scenarios without clarity on which will unfold. Financial institutions like HSBC and Deutsche Bank are bracing for more loan defaults, while European firms such as Adidas and Porsche are pausing or revising forecasts due to uncertainty about how tariffs will impact pricing and profits. Although some companies, like Nucor, benefit from protectionist measures, the overall business sentiment is increasingly anxious. A recent survey found more than 80% of corporate leaders across political affiliations are concerned about the current political and legal climate. The inconsistent policy direction in Trump’s first 100 days has already prompted a retreat from aggressive growth strategies, underscoring how strategic uncertainty has become a defining feature of the economic landscape.

#6

Private Investigator Being Extradited

An Israeli private investigator, Amit Forlit, has lost his legal battle against extradition from the United Kingdom to the United States, where he faces charges related to a "hack-for-hire" scheme allegedly targeting environmental activists involved in litigation against ExxonMobil. According to U.S. prosecutors, Forlit orchestrated cyberattacks to obtain confidential information, which was then passed to a lobbying firm and subsequently leaked to the media. Forlit's defense argued that the prosecution was politically motivated, given the context of climate change litigation; however, the British judge dismissed this claim, stating that Forlit was essentially a "hired gun" in the operation. This case highlights the serious legal and reputational risks corporations face when security operations cross legal boundaries. While there’s no evidence directly implicating ExxonMobil in commissioning the hacks, the case serves as a cautionary tale for corporations that rely on external investigators, private intelligence firms, or aggressive legal support services. It shows how even well-intentioned efforts to protect a company’s interests can backfire when third-party actors employ illegal tactics. For corporate security teams, the lesson is clear: due diligence, legal compliance, and strict oversight of contracted partners are non-negotiable. A security team that oversteps its bounds—even indirectly—can create massive liabilities for the company, including criminal investigations, regulatory scrutiny, and brand damage.

#7

Corporations Increasingly Focused on Geopolitical and Security Risks

U.S. corporations are simultaneously escalating their focus on geopolitical risk management and enhancing executive security measures, reflecting a broader shift in corporate strategy amid rising global and domestic threats. A recent report by the U.S. Chamber of Commerce Foundation reveals that Fortune 250 companies have more than doubled references to geopolitical risks in their financial disclosures since 2019, with a fourfold increase since 2009. This trend spans all sectors, indicating a widespread concern over the complexities of the global operating environment. Notably, technology firms lead in expressing these concerns, but the heightened awareness is evident across various industries. Concurrently, corporate America is significantly increasing spending on executive security. This surge follows the December 2024 targeted killing of UnitedHealth executive Brian Thompson, which served as a wake-up call for many companies. A Reuters analysis of S&P 500 proxy statements indicates that at least a dozen firms, including Walmart, General Motors, American Express, and Broadcom, have boosted security expenditures in response to heightened risks. For instance, UnitedHealth disclosed $1.7 million in security spending for top executives in 2024, marking its first such disclosure. Similarly, Broadcom reported spending $1.37 million on CEO security. Security firm Allied Universal noted a 10 to 15-fold increase in demand for executive protection services since Thompson's murder. These developments are happening in tandem because the operational environment for multinational corporations is deteriorating rapidly. Global conflicts, trade wars, cyberattacks, regulatory fragmentation, and political extremism are converging to expose businesses and their leaders to a wider range of threats than at any time in recent history. Whether navigating hostile state actors, managing reputational risk from disinformation campaigns, or facing domestic political violence, corporate leaders must now contend with a fundamentally riskier world. This has made both geopolitical intelligence and executive protection core components of corporate risk strategy.

#8

Papal Conclave to Elect New Pope

The Vatican has announced that the conclave to elect the next pope will commence on May 7, 2025, following the funeral of Pope Francis on April 26. This decision was made during a closed-door meeting of cardinals at the Vatican. Approximately 135 cardinals under the age of 80 are eligible to participate in this secretive electoral process, representing the global 1.4-billion-member Roman Catholic Church. Preparations are underway in the Sistine Chapel, which has been closed to tourists to ready the space for the conclave. The election process combines centuries-old rituals with modern anti-surveillance measures to ensure confidentiality. Unlike previous conclaves in 2005 and 2013, which lasted only two days, the upcoming conclave will likely take longer, as many of the cardinals appointed by Pope Francis have never met each other. The cardinals face significant challenges in selecting a new pope, including addressing ongoing sexual abuse scandals, financial concerns, interfaith relations, and calls for modernization within the Church. Pope Francis was known for his liberal reformist approach, fostering dialogue on contentious topics such as ordaining women and outreach to LGBTQ Catholics. His legacy has sparked differing opinions among the cardinals, with some pushing for continuity in his progressive vision and others, particularly traditionalists, advocating for a return to stricter doctrine. As the pope serves as a moral and political voice on international issues such as migration, climate change, war and peace, human rights, and economic justice, depending on who is elected, the Vatican could shift its tone on relations with China, its posture in the Russia-Ukraine conflict, or its stance on U.S. and European political polarization. Pope Francis’s legacy of global engagement, especially with the Global South, has reshaped Catholic diplomacy by elevating voices from Latin America, Africa, and Asia. A successor who continues this trajectory could further amplify the Church’s role in south-south diplomacy, development aid, and conflict mediation. Alternatively, a more conservative pope might reverse these trends, realigning the Vatican with traditional Western powers and curtailing its engagement in liberal policy debates. For governments and multinational organizations, the new pope’s orientation will affect soft power dynamics, humanitarian priorities, and even domestic politics in countries with large Catholic populations.

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