Global Economic Trends

We continue to emphasize that this economic cycle has some stark differences from the patterns observed in the past. As we detail in the chart below, nominal GDP is growing faster in all the major economies we track except China. There are also some important regional nuances that have emerged. In Europe, for example, Aidan Corcoran suggests that it is the periphery, not the core, that is driving growth this cycle. After several trips to Europe this year, I agree that it is different this time. Overall, despite political uncertainties, we both think that the economy is currently bottoming, as stronger tourism, rebounding sentiment, lower energy prices, and a long-awaited increase in real wages will lead to a much more positive consumer in the coming quarters. Further, falling inflation has also allowed the easing cycle to start in Europe, not the U.S., for the first time in history. Turning to the East, Japan is finally entering an inflationary cycle, after exiting deflation for multiple decades. Changchun Hua and I think that a structural economic reawakening is in progress, particularly in the corporate governance arena. Meanwhile, China’s economy appears to be bottoming, with its recovery being driven more through intra-Asia trade and a rebound in the services sectors than a traditional rebound in housing and/or consumption. Moreover, Frances Lim’s work suggests that Asia is becoming more Asia-centric as trade within the region rises – in 1990, just 46% of Asian trade took place within Asia, but by 2021, that figure had reached 58%. Our bottom line for global growth: We retain our conviction at KKR that, despite some cyclical inflation, we are living in a higher nominal GDP environment in many economies around the world. Against this backdrop, we remain constructive around the potential for a rebound in real wages, as well as for structural considerations related to technology and automation, to drive higher. If we are right, then Opportunity Knocks again in 2H24 and beyond. Read more about our in global macro regional views at https://go.kkr.com/3KQ8vdX.

◾ The recent solid jobs report emphasized the ongoing resilience in hard economic data. Nonfarm payrolls increased by 139k in May and the unemployment rate remained at 4.2%. However, while hard economic data has held up so far, we expect the reports to soften over the coming months. ◾ Rotations within the equity market suggest investors are pricing an optimistic growth outlook. The performance of Cyclicals vs. Defensives reflects a roughly 2% US real GDP growth environment. Goldman Sachs economists expect forward four-quarter real GDP growth to equal roughly 1%. ◾ Many clients have raised concerns over risks to the market rally and the market's pricing of growth ahead of weaker growth data. We see three reasons to discount the anticipated headwinds. ◾ First, soft economic data have already weakened and typically trough before the hard data. S&P 500 returns are currently more correlated with soft data than hard data. If the recovery in soft data is sustained, it should support equity returns even as hard data weaken. ◾ Second, investors may be looking through the near-term weakness and out to 2026. Goldman Sachs economists forecast real US GDP will slow to 0.4% on a Q/Q annualized basis in 4Q 2025 but rebound to 2.0% by 4Q 2026. ◾ Third, our sector-neutral baskets of economically sensitive stocks appear to imply a slightly less optimistic growth outlook than the Cyclicals vs. Defensives pair. The median High Operating Leverage (GSTHOPHI) stock trades near a record valuation discount to the median Low Operating Leverage (GSTHOPLO) stock. We rebalance our Dual Beta basket (GSTHBETA), GSTHOPHI, and GSTHOPLO in this report. ◾ We see both upside and downside risks to the market's pricing of economic growth. A significant deterioration in economic data may challenge the ability of investors to look through near-term weakness. In contrast, there is room for further improvement in soft data, which would support continued upside for equities.

𝗧𝗵𝗲 𝗴𝗿𝗲𝗮𝘁 𝗔𝗺𝗲𝗿𝗶𝗰𝗮𝗻 𝗱𝗶𝘀𝗰𝗼𝗻𝗻𝗲𝗰𝘁: 𝗪𝗵𝘆 𝗵𝗮𝗹𝗳 𝘁𝗵𝗲 𝗰𝗼𝘂𝗻𝘁𝗿𝘆 𝗳𝗲𝗲𝗹𝘀 𝗹𝗲𝗳𝘁 𝗯𝗲𝗵𝗶𝗻𝗱 𝗶𝗻 𝗮 𝗯𝗼𝗼𝗺𝗶𝗻𝗴 𝗲𝗰𝗼𝗻𝗼𝗺𝘆 Recent data shows a disconnect between economic indicators and public sentiment about the American Dream. Here are some key insights: 𝗘𝗰𝗼𝗻𝗼𝗺𝘆 𝗯𝘆 𝘁𝗵𝗲 𝗻𝘂𝗺𝗯𝗲𝗿𝘀: Real GDP reached $22.9 trillion in Q2 2024 Real GDP per capita hit $68,700, up from $63,257 in Q4 2019 2.84% annualized Real GDP growth in Q2 2024 Yet, 52% of Americans believe the American Dream is dead, up from 43% in 2010. 𝗪𝗵𝘆 𝘁𝗵𝗲 𝗱𝗶𝘀𝗰𝗼𝗻𝗻𝗲𝗰𝘁? Income Inequality: While all income groups have grown since 1967, the gap between the highest and lowest earners has widened. Intergenerational Mobility: Only 50% of children now out-earn their parents, down from 90% for those born in the 1940s. Relative Comparisons: In the age of social media, it's easier to see what we lack, which affects perceptions. 𝗧𝗵𝗲 𝗧𝗮𝗸𝗲𝗮𝘄𝗮𝘆: While traditional economic measures show growth, the experience of that growth varies greatly across income levels. As leaders and professionals, it's crucial to consider objective data and subjective experiences when evaluating economic well-being. How can we bridge the gap between economic data and public sentiment? #EconomicTrends #AmericanDream #Leadership #EconomicInequality

Phone calls have been buzzing. Laptops are glowing. Excel sheets are flying. This wasn’t a typical weekend for the C-suite. Across sectors, CEOs, CFOs, and CIOs have been on back-to-back calls, recalibrating their strategies as they enter what is one of the most significant policy shifts in modern geo-economic history. 💼 Emergency executive teams have been formed. 📈 Scenario models are multiplying. 🌐 Global subsidiaries are under the microscope. We are navigating a complex web of policy shifts—and these are not marginal adjustments. As leaders, we’re being pushed to ask questions that, until recently, seemed unfathomable: What happens to pricing in an era of shifting tariff and tax regimes and fractured supply lines? How will demand evolve as economies rebalance and national interests take center stage? Most critically, how resilient and responsive are our supply chains in a world where geopolitics now shapes logistics? This goes far beyond how we report earnings, manage compliance or mitigate risk. It’s a transformation in how the global economy functions—and we must treat it as such. Sector by Sector: What’s Being Redefined 🔸 Consumer Brands Witnessing a reevaluation of inventory strategies. Pricing models need to become more agile. Loyalty programs and e-commerce ecosystems are being re-modeled. 🔹 Manufacturing Supply chains are under pressure—this time from trade sensitivity - Transfer pricing and subsidiary-level planning are evolving fast. “Smart factories” in the US being evaluated are being looked into 🔸 Technology The location of R&D hubs and IP ownership is no longer just an efficiency play—it’s a governance priority. Technology Teams are developing new offerings with the highest return and lowest cost. 🔹 Investments & Funds Portfolio managers are engaged in intensive scenario planning as asset prices fluctuate rapidly on a daily basis. Asset managers have been the busiest lot! Research houses are backlogged. In moments like these, the role of leadership is clear: We must look ahead—not just at what’s changing but at what will be demanded of us in the next chapter. Are we prepared to act, restructure, and lead at the pace this new environment demands? The rules of the game are being Rewritten. Strategically. Permanently. C-suites are planning in layers—playing both defense and offense. Many businesses are stockpiling optionality. Some are building inventories. The savviest? Building entire alternate operating structures. What Few Are Saying Loudly—But Everyone's Acting On: 🔹 Investment houses are recalibrating long-term models 🔹 Export-heavy industries are rethinking FX and interest rate exposure 🔹 Defense, infrastructure, and energy assets are being repriced 🔹 The idea of “neutral geographies” is being redrawn in real time This isn’t just policy. It’s the geoeconomic restructuring of our time.

Most of the big trends that affect our lives are neither all good nor all bad – the key is how we manage them. Lately our track record has been pretty poor. Now a new challenge is coming, so how will we do? Two of the biggest economic trends in the past half-century have been globalization and technological change. Both of these trends could have been rising tides that lifted all boats. Yet we failed to manage them in ways that would have minimized their ill effects. Globalization opened markets for trade around the world. As economists have shown, trade can always make both partners better off, as long as the winners share some of their gains with the losers. This typically means compensating people who lose jobs and helping them to find new livelihoods. In the United States, we did a poor job of it – as manufacturing jobs disappeared, for example, many people's living standards dropped. At the same time, technology expanded the frontiers of our economy and led to huge increases in productivity. The American pie got a lot bigger, but some people didn't get bigger slices. Again, we didn't invest enough in adaptation, retraining, and other support for people whose jobs changed or disappeared altogether. Instead, we ended up in a situation where the people best able to take advantage of globalization and technology – usually those with resources, connections, education, and security – became enormously wealthy, while millions of others struggled to keep up. Meanwhile, hundreds of millions of people in developing countries escaped poverty. China's middle class grew by more than the entire population of the United States. Dozens of other countries in Asia, Africa, and Latin America achieved relative prosperity and economic stability. Access to new markets and adoption of new technology (mediated by other processes like urbanization) made this progress possible. Both globalization and technology reduced inequality between countries. Yet left unmanaged, both also broadened inequality within countries – not least the United States. Between 1978 and 2015, the top one percent's share of the nation's wealth grew from 22% to 37%. According to the World Inequality Lab, that's a higher share than in Equatorial Guinea, the Obiang family's private petrostate. The consequences of this inequality, as well as the dislocations that contributed to it, are in the news every day. Today we face another potentially transformative trend with the advent of generative AI and AGI. If we don't manage the transition in our labor market, we stand to repeat the damaging pattern of the past several decades. It will probably take a joint public-private effort to identify the people most at risk and create pathways for them to succeed. Where should we start? #genai #economy #labormarket [Chart: World Inequality Database]

According to the World Economic Forum, in the US alone, it is estimated that the widening racial wealth gap will cost the country up to $1.5 trillion in economic growth by 2028. Such economic exclusion hurts not only the marginalized communities but also the global economy. Through case studies, this report presents three pathways for social innovators, companies, and governments to leverage racial equity opportunities to unlock business value: by reaching new markets; by tapping into diverse talent pools; and by building inclusive networks to strengthen their innovation capabilities. #FinancialInclusion #Innovation #Entrepreneurship #Inequality

📈 DEAN Series: Interpreting GDP for Smarter Energy and Economic Decisions Every form of economic activity depends on energy—and energy demand, in turn, is shaped by the health of the broader economy. GDP trends influence inflation, job growth, trade, and investment decisions across sectors. Whether you're in energy, finance, policy, or business, understanding where the economy is headed is essential. With TXOGA’s Quarterly Energy Economics Review covering deeper technical topics, I’ve also received questions about how to make sense of the mainstream indicators we monitor. That’s why I’m launching a new series: Demystifying Energy Analysis and Navigation (DEAN) This first installment takes a closer look at GDP—how it's measured, where the global economy stands, and what it means for energy demand and long-term planning. 🔹 1. Why GDP matters. GDP is more than a headline—it’s the foundation for understanding economic well-being. It directly captures spending, investment, and trade, and indirectly signals inflation, jobs, corporate profits, and real income. Energy demand, particularly for oil and natural gas, has long tracked closely with GDP growth. 🔹 2. How we measure it. We use IMF GDP data in U.S. dollars using market exchange rates (MER)—not purchasing power parity (PPP). MER avoids overstating the size of emerging markets (which PPP can inflate ~3x), offering a more grounded perspective for global energy modeling. 🔹 3. What it shows today. Global GDP averaged 3.0% from 2022–2024 but is slowing. The IMF now forecasts 2.4% growth for 2025–2026—nearing recessionary territory, especially given its typical optimism. The outlook still assumes: 4.0% growth in China, 1.8% in the U.S., and 0.6% in Japan. Yet the U.S. economy contracted in Q1, even with consumption pulled forward in anticipation of trade policy changes. 🔹 4. What to watch. Though GDP itself hasn’t signaled a downturn, warning signs are flashing: • U.S. consumer sentiment is at historic lows • Loan delinquencies (90+ days) are rising • Global trade volumes are expected to fall • Bond yields are climbing • The U.S. dollar is down over 6% YTD High-frequency indicators like the Philadelphia Fed’s ADS index point to clear deceleration—not collapse, but enough to raise red flags, especially with structural shifts on the horizon. 🔹 Key takeaways •   GDP trends are central to energy and economic planning •   Measurement methods matter for interpreting global demand •   Slowing growth suggests mounting risk across markets •   Leading indicators reveal more strain than headlines suggest •   Long-term energy investment must account for structural shifts More to come in the DEAN series as we bridge macroeconomic signals and energy market implications. #EnergyEconomics #OilAndGas #GDP #DEAN

Third of global GDP could be lost this century if climate crisis runs unchecked, according to a new report. https://lnkd.in/eujzccVE Taking strong action to tackle the climate crisis will increase countries’ economic growth, rather than damage their finances as critics of net zero policies have claimed, research from the world’s economic watchdog has found. Setting ambitious targets on cutting greenhouse gas emissions, and setting out the policies to achieve them, would result in a net gain to global GDP by the end of the next decade, according to the Organisation for Economic Co-operation and Development (OECD - OCDE), in a joint report with the UN Development Programme (UNDP). The calculation of the net gain, of 0.23% by 2040, would be even greater in 2050, if it included the benefit of avoiding the devastation that not cutting #emissions would wreak on the economy. By 2050, the most advanced economies would enjoy an increase of 60% in GDP per capita #growth, while by the same date lower income countries would experience a 124% rise from 2025 levels. In the shorter term, there would also be benefits for developing countries, with 175 million people lifted out of #poverty by the end of the decade, if governments invest in cutting emissions now. By contrast, a third of global GDP could be lost this century, if the #climatecrisis were allowed to run unchecked.

From poultry farms to apparel factories, recent years have underscored a common lesson: expect the unexpected. The bird flu outbreak in the food supply chain is a stark reminder of unpredictability and the fragility of even well-oiled supply systems. The #fashion and #retail sector’s disruptors – whether sudden (a blocked canal, a #tariff war, a viral hashtag) or systemic (ultra-fast competition, government policies) – have had similarly far-reaching and unpredictable impacts. In scale, these events are global and massive – a single shock (like the Xinjiang #cotton ban or SHEIN’s ascent) touches countless companies and consumers, just as #birdflu swept across dozens of states and countries, requiring a coordinated response. In unpredictability, they often emerge with little warning, defeating forecasts (few predicted canal blockades or a global pandemic, just as disease experts were stunned by the H5N1 flu strain). And in cascading effects, they set off chains of consequences – shortages, price spikes, shifts in labor and policy, consumer spending, bankruptcies, and #innovation spurts – that interact in complex ways. What’s the equivalent crisis for fashion and retail? Supply Chain – From the pandemic’s freight crisis (ocean shipping up 8X normal rates) to cotton shortages, we’ve seen how one missing link can cripple an industry overnight. Labor & Ethical Flashpoints – The U.S. banned Xinjiang cotton (20% of global supply) over forced labor concerns. Bangladesh’s recent wage protests shut down 500 factories. Disruptions like these force brands to pivot fast—or suffer huge losses. Regulatory Upheavals – PFAS bans, carbon emissions laws, and import restrictions are reshaping sourcing, much like how food safety laws changed poultry farming post-bird flu. Ultra-Fast Fashion’s Market Shock – Shein and Temu have rewritten the playbook. With half the prices of Zara and H&M and lightning-fast trend cycles, legacy retailers are scrambling to compete, much like how alternative proteins gained ground when eggs became unaffordable. Economic & Consumer Shifts – #Inflation has reshaped shopping habits, while resale and sustainability concerns have pushed consumers toward thrift and rental models. Just as bird flu made shoppers rethink food security, fashion’s upheavals force brands to rethink resilience and agility. Yet, with #disruption comes #adaptation. The bird flu crisis spurred new investments in biosecurity and diversified sourcing of eggs (including vegan egg alternatives), increasing resilience. Likewise, the fashion industry’s upheavals are prompting a reimagining of #supplychains – from near-shoring production to investing in transparency #technology – and a rebalancing of business models to be more flexible and sustainable. In the end, the companies and industries that survive such storms are those that learn and evolve, using the hard lessons of crisis to build systems that can weather the next “bird flu” – whatever form it takes.

There have been a lot of recent policy developments and economic #data to digest in the last few weeks. #Tariff changes, OBBBA, GDP, #labor market, #inflation, etc. Instead of dissecting each individual development, I try to zoom out and ask myself, what does all of this mean for the overall #economy as we head into the second half of 2025? First, a quick synopsis: - Deals with US' top trading partners (Mexico, Canada, China) are still in process, with most of the dreaded and severe impact dulled (USMCA exclusions) or delayed (90-days for China). - Reciprocal tariffs on most of America's other leading trading partners are now in place, with many of the largest (EU, UK, Japan, S. Korea) getting deals in the 15%-20% range. Unexpected spikes in tariffs on Brazil and India for geopolitical reasons underscore that tariffs are no longer just about trade. - GDP growth was healthy through the first half of the year. When assessed on a cyclical basis, GDP has grown at a 2.0% y-o-y clip in each of the past two quarters, which is in line with the long-term historical trend. - Labor market conditions are weaker than previously thought, with significant data revisions calling the validity of the BLS data into question. No major increase in layoffs as of yet, but certainly concerning when it comes to the macro outlook for the next several quarters. - Inflation is steadily rising, with the Core CPI (exc. food and energy) number out this morning showing inflation is up 3.1% in the last 12 months. The upside trend in this data indicates the FED's target of 2% is getting farther out of reach. Alex's Analysis: The overall economic machine is clearly down-shifting, with labor market and inflation data forcing the FED into a difficult situation when it comes to cutting rates. I do expect a rate cut in September, but future data points will be highly influential in determining how many cuts we get this year, and how significant they are. Consumers and businesses are slowly dialing back spending and investment as ongoing uncertainty makes both want to save more for a rainy day. This pullback in activity is not catastrophic as of yet but could accelerate into the end of the year if the deterioration in the data persists. My expectation is that inflation will continue to tick up in the coming months as the impact of tariffs works itself through to consumer #prices, while the labor market remains soft without completely capitulating. Overall growth (GDP) will likely end the year at about half the pace of last year's ~2.5% number. My advice to everyone is head down, hustle, and strive for the best performance possible given the above, while tuning out the clamor of the extreme views in the media, social networks, and your circle of friends and coworkers. Steady as she goes.