Polarization and Spending: A New Fiscal Era

The global economy faces a challenging period with rising government spending amidst geopolitical tensions and declining globalization. As central banks reduce support, countries like the U.S., Germany, and Japan are expanding their budgets, straining public finances. Investors face increased risk in bonds, with calls for fiscal consolidation unheeded.

The global economy finds itself at a crossroads. Countries are ramping up government spending without the immediate pressure of a crisis, as they adjust to a world marked by fraying globalization and rising geopolitical tensions.

In the U.S., the proposed defense budget threatens to widen an already significant deficit. Concurrently, Germany's lifting of its 'debt brake' and Japan's fiscal promises contribute to ballooning deficits and borrowing requirements.

Central banks are stepping back as reliable supporters of governments' fiscal ambitions, prompting a re-evaluation by investors. With fiscal consolidation appearing unlikely, the resilience of traditional investment strategies, like the '60/40 equity/bond' portfolio, is called into question.

(With inputs from agencies.)