The first half of 2025 saw a sharp increase in global uncertainty caused by Donald Trump’s unpredictability.

The new US president used fear and the threat of tariffs to renegotiate trade agreements with all the main partners that, over the past twenty years, had benefited from growing US consumer spending. Trump also heavily attacked all investments linked to climate change by eliminating subsidies for electric vehicles, targeted leading US universities, launched a battle against immigration and finally promised to drastically cut defence spending for his allies (Europe foremost).

Meanwhile, US debt keeps rising fast and will reach 120 % of GDP by year‑end, with its average cost climbing rapidly, returning, as a share of GDP, to late‑1980s/early‑1990s levels.

US Treasury Net Expenses % of Nominal GDP (rolling 12m)

Source: CBO

The elevated level of interest expense has reached defence spending – a historical red flag for public finances. The plan that the Trump administration is trying to have approved by the Senate, after clearance from the House, will produce an annual deficit of around 7% for the next three years, causing a further increase in public debt.

Ten‑year Treasury yields are currently around 4.5 %. This level is causing a marked slowdown in residential construction and in corporate capital expenditure. The only segment that continues to expand is linked to artificial intelligence (AI), which shows no sign of cooling, also because the big spenders are US mega‑caps that have ample liquidity and do not want to fall behind in using AI in their businesses. Chinese companies are the only ones vying with US firms in the race for global leadership in this field.

One of the reasons US equity valuations are historically high is the expectation of a sharp improvement in corporate productivity across all sectors: in the medium term this will be a key driver of global GDP growth.

In the short term, however, slowdown risks should prevail because tariff‑driven inflation is likely to stay above 3 %, with a Fed unable to cut rates. A positive wealth effect persists, given that the stock market has almost returned to record highs. The high federal deficit will certainly support the economy, so the US should avoid slipping into recession.

The dollar should remain weak and reach 1.20 against the euro, a level that would allow the US to improve its trade balance even with tariffs of 10 % on most of the world and 30 % on China, whose currency is practically pegged to the dollar.

Since the beginning of 2025 Europe has reduced its valuation gap by about 15 %, driven by sharply higher defence spending and Germany’s historic decision to remove the annual deficit cap, which will generate a massive increase in public expenditure (estimated at €500 billion) over the next five years.

To hope for a further closing of this gap, Europe must move quickly to create a true European capital market, encouraging the shift of the enormous private savings sitting in current accounts into more productive investments. Moreover, in line with the Draghi agenda, Europe must accelerate investment in strategic sectors such as energy transition and digitalisation.

The convergence effect of European valuations towards the US can be considered partly over: in the first part of the year there was a return of interest in the Old Continent driven by a discount that had reached historic highs and by a slight inflow of capital from the rest of the world; in the coming months it will be essential to rely on earnings growth at least equal to that of the US to support further convergence.

Small and Medium‑Sized Enterprises (SMEs) deserve mention, showing extremely depressed valuation levels both in absolute terms and relative to large‑cap companies.

Large caps have been favoured over the past 24 months by three factors:

sector theme – greater exposure to financials;

liquidity preference, as in a phase of uncertainty investors tend to remain in securities that are easier to liquidate;

the trend in rates, since small caps historically tend to have higher leverage and benefit from periods of rate cuts.

These three factors have reached the maximum negative effect and will fade in the coming months, favouring a recovery of SMEs versus large‑caps on the stock market.

China is still paying the price for weak domestic consumption that began in 2020 with Covid and continued with the bursting of the property bubble, which had a heavy negative effect on wealth (real‑estate investment represents two‑thirds of private wealth).

In the meantime China has invested heavily in strategic, high‑value‑added sectors, becoming the global leader in electric cars, batteries, photovoltaic panels and, more recently, AI chips.

Current P/E Ratios by Market

Source: Bloomberg, data analysed by Banor

Industrially, China is increasingly competitive and is becoming a threat – one that will remain in the months and years ahead – for many European industrial companies. In addition, Chinese companies enjoy strong state support.

Chinese stock‑market valuations are very attractive from a long‑term perspective, but in the short-term few investors dare enter this market because of high geopolitical tensions involving China’s allies (Russia with the war in Ukraine and Iran with Israel). Because of these tensions the oil price has returned to the 70–80 dollar range and gold remains near record highs.

“Exceptional unpredictability.” With these words Jerome Powell, Chairman of the Federal Reserve, summed up the moment global markets are going through. His words sound like a warning and an invitation to prudence in a context dominated by overlapping factors: the long tail of post‑pandemic inflation, geopolitical fragmentation, trade tensions and the growing weight of sovereign debt.

If inflation, at least in its most aggressive form, seems to have lost part of the centrality it had in 2022, it cannot yet be declared defeated. Latent risks remain, especially linked to potential exogenous shocks: an escalation in geopolitical conflicts, a sudden rise in energy prices, or new rounds of tariffs in the United States, for example in a post‑election scenario. Central banks, however, now seem to consider these shocks as transitory in their ability to alter the inflation path structurally: a remarkable paradigm shift compared with recent years, when any hint of accelerating inflation triggered immediate, severe reactions.

Sovereign Debt: The Elephant in the Room

Attention now shifts to another key variable: public debt. And here concerns deepen. The United States has already lost its famous AAA rating from the agencies: the federal spending plan is on an “unsustainable” path (to use the term of the Congressional Budget Office, an independent, non‑political body whose role is to produce debt forecasts based on government decisions). From the 123 % debt‑to‑GDP expected for end‑2025, the ratio will rise to over 169 % in the next twenty years, and this without considering the lower revenues expected from Trump’s promised Big Beautiful Bill tax cut. The bond market will have to digest ever larger issues, with potential implications for real yields and investor confidence.

Europe too will see higher public spending, but this time it will come from Germany, traditionally the bastion of fiscal orthodoxy, with a spending and investment programme that represents a deep break with the past.

A Window of Opportunity for Europe: Capital Fleeing the Dollar

It is precisely in this context that an unprecedented window of opportunity opens for Europe. As highlighted by the global‑flows chart below, dollar markets are extraordinarily larger than those denominated in euros. The US equity market is about four times bigger than its European counterparts. In credit, the USD bond market is almost twice the size of its EUR peers. Even in international reserves, the dollar’s supremacy is clear.

US and European Markets Compared (USD billions)

Source: Bloomberg, IMF COFER, Banor

This size imbalance implies that even a modest outflow of capital from US assets can have a disproportionately positive impact on European markets. For a global investor, simple portfolio rebalancing can translate into significant volumes for Europe, capable of supporting bond prices and reducing funding costs for sovereign and corporate issuers. In this scenario, Europe can attract renewed attention, provided it proves to be a credible and stable area. Christine Lagarde has also reminded us: trust is not guaranteed; it must be earned with reforms, fiscal discipline and a shared strategic vision.

Resilient Segments: Corporate Bonds and Credit Quality

Despite the shadows over sovereign debt, there are sectors of the bond market that are showing strength. High‑quality corporate bonds in particular are emerging as one of the most resilient areas. Solid, well‑capitalised firms with stable cash flows continue to enjoy global investor confidence. Bank bonds also continue to outperform, in line with the exceptional stock‑market performance achieved, because, at the same rating, they continue to offer an attractive risk premium compared with industrial names, in a context in which idiosyncratic risk on individual banks is objectively lower than on high‑yield industrial bonds.

Germany and Its Potential to Drive European Growth

In this context, Germany could play a decisive role. The investment plan announced – totalling hundreds of billions of euros – is not only a national initiative but a potential multiplier for the entire euro area. If accompanied by structural reforms, it could mark the start of a new season of continental growth, with benefits also for the bond market.

For this to happen, however, a change of pace will be necessary: less fragmentation among Member States, more fiscal coordination, and a strategic vision that reconciles growth and sustainability. A historic moment in which politics will have to make courageous choices.

Travel as a new consumer paradigm

2025 opened with the travel sector continuing to surprise for its vitality. According to the United Nations World Tourism Organization, international tourist arrivals recorded a further +5 % rise in the first quarter of the year, steadily approaching pre‑pandemic volumes. After the experience of Covid‑19, travel has ceased to be an occasional break and has become a recurring form of consumption, carefully planned and increasingly placed at the centre of the family budget, especially among younger consumers.

In particular, Millennials and Gen Z show a growing preference for experience over possession: people live to travel, tell and share. This cultural change is not marginal but represents a structural driver of growth, destined to influence deeply the demand and supply of tourist services in the coming years.

A Macro View: Demography, Digitalisation and Purchasing Power

In 2022 global travel‑and‑tourism spending stood at about USD 5 trillion. Most market‑research studies forecast double‑digit average annual growth through 2031. According to the latest survey by the International Air Transport Association (IATA), 47 % of travellers intend to spend more than the previous year, while 53 % plan to maintain the same budget: data that confirm the growing centrality of travel in consumption behaviour.

This dynamic is fuelled by three main factors:

the strength of the North‑American economy, with low unemployment and recovering real wages, which favours experiential spending – money spent on experiences rather than physical goods;

the expansion of the Asian middle class, which in 2025 alone should grow by a net 70 million people;

lower fuel prices, allowing airlines to increase capacity at lower cost, improving connectivity.

Overall, these factors outline a solid macroeconomic framework, onto which is grafted an acceleration of digital innovation and increasing diversification of the offer.

Platforms, Business Models and New Habits

The travel sector is far from homogeneous: within it coexist profoundly different business models with very diverse capital intensity. They range from strongly asset‑light entities, such as OTAs, which intermediate bookings and monetise distribution, to operators that require high capex, such as airlines, hotel chains with direct management, traditional tour operators or the cruise industry, which combine operational management, logistics and infrastructure ownership.

This heterogeneity of models requires a careful reading of the underlying economics: margins, cyclicality, operating leverage and capital needs vary significantly from segment to segment, influencing the resilience and growth strategies of each operator.

Transformation Drivers

Four key trends are reshaping the near future of travel:

the professionalisation of alternative accommodation, thanks to shared standards and more advanced distribution systems, is broadening supply and increasing monetisation capacity;

the bleisure phenomenon – combining business travel and leisure – continues to expand, filling mid‑week nights: over 60 % of business trips are now extended with a leisure component;

rising experiential spending, now growing at a double‑digit pace and outstripping transport and lodging, reflects a profound change in consumption priorities;

the adoption of generative artificial intelligence – AI that creates value content rather than just analyses – is revolutionising pricing, personalisation and cross‑selling, helping to raise average transaction value.

Risks and Conclusion

Some risk elements remain in the background: geopolitics, which could impact global economic growth, potential energy‑cost pressures and stricter regulations on short‑term rentals in some large urban centres. Finally, a recession could reduce the spending propensity of certain traveller segments.

In the coming months the travel & leisure sector could move towards more normalised growth after the post‑pandemic expansion, yet it remains a lively, hybrid and transformative field where technology, demography and new consumption values converge in increasingly adaptive business models. The structural push towards mobility, the focus on experience and the ability to capture new lifestyles make tourism not only a growing market but also one of the most promising sectors in which to operate and invest for those with a long‑term view.