JPMorgan Chase: American exceptionalism is declining, but Europe's rise is uncertain

This article is reproduced from: Wall Street News

The tide of the global economy is turning.

The latest research report from JPMorgan Chase points out that the situation in which "American exceptionalism" prevails in the past few years may be coming to an end. Since the outbreak, the US economy has recovered strongly, far outperforming other regions, but now the gap is narrowing.

The report, led by Bruce Kasman and Joseph Lupton, raises a key question: Can the long-term outstanding performance of the US economy continue? Analysts had expected US economic growth to slow to a potential level of around 2%, but factors such as trade frictions and fiscal tightening are expected to drag down the rest of the world (ROW), thereby maintaining the relative advantage of the United States.

However, recent developments have prompted JPMorgan Chase to reassess its views. US policies seem to be turning to a position that is not conducive to business, while European fiscal policies are beginning to wake up, especially in Germany.

The end of the "American exceptionalism"?

The report points out that several key factors that led to the "American exceptionalism" are reversing:

Government spending: In 2023-2024, the US government's spending increased significantly, driving economic growth. But now, DOGE's policies have led to a possible sharp cut in government spending. In contrast, Europe is turning to more stimulative fiscal policies, especially in defense and infrastructure.

Price shocks: The epidemic and the conflict between Russia and Ukraine have caused inflation in Europe to soar. And now, as the possibility of a ceasefire in Ukraine increases, natural gas prices have fallen sharply. At the same time, the United States is facing a new price shock as tariffs will push up inflation.

Supply-side challenges: Over the past two years, US productivity has increased significantly, while European productivity has declined. JPMorgan believes that US supply growth is already slowing as US demand cools and immigration inflows slow. In contrast, Europe's supply is accelerating and is expected to recover further as demand recovers.

European recovery under the shadow of trade war

JPMorgan Chase has significantly raised its economic growth forecast for the eurozone in 2025-2026, predicting that the eurozone GDP growth rate will be close to 2%. This shift is mainly due to a series of fiscal stimulus measures announced by the new German coalition government, including infrastructure funds and defense spending exemptions from debt restrictions.

A chart in the report (Figure 2) shows that under the new eurozone fiscal stimulus, the eurozone economic growth rate is expected to increase significantly. However, if the United States imposes a 25% tariff on USMCA, the US GDP growth rate may fall to around 1%.

Global recession risk rises

Despite Europe's improved outlook, JPMorgan Chase warned that the global economy still faces two major risks:

1. The United States launched a trade war against the European Union, which will seriously drag down eurozone economic growth.

2. The US trade policy triggered a shock to business confidence, leading to a recession in the US and global economy.

JPMorgan Chase raised its assessment of the risk of a global recession this year from 30% to 40% (Figure 3).

The report pointed out that a slowdown in the US economy usually has a roughly 1:1 impact on other parts of the world (Figure 9). But if the US slowdown is due to the drag of the USMCA, the financial transmission channel to regions outside North America may be mild.

Confidence divergence: US weakens, Europe stabilizes

The report also noted that even if a full-blown trade war is avoided, the threat of back-and-forth may still be enough to slow global growth.

For now, even as US business confidence begins to waver, confidence in the eurozone is holding up (Figure 10).

In February, both manufacturing and consumer confidence in the United States fell sharply. In contrast, confidence in Europe has not deteriorated significantly this year, although businesses remain generally depressed.

It is worth noting that consumer confidence in the eurozone has been rising as US consumers have shown caution.

Conclusion: The world is being reshaped

This report from JPMorgan Chase paints a picture of a global economic landscape that is undergoing a major transformation.

The halo of "American exceptionalism" is fading, and Europe is likely to usher in new growth opportunities. However, trade wars and policy uncertainty remain the sword of Damocles hanging over the global economy.

The road ahead is full of variables, but one thing is clear: the world is becoming less "American exceptional."