My colleague Aidan Corcoran, who heads our international macro effort at KKR, and I recently spent time in Europe meeting with executives, CIOs, macro experts, and central bank watchers. This trip followed on the heels of my visit to the Middle East, where I engaged with a similar line-up of people from the region, including business executives, investors, and central bankers. As we detail below, after having also traveled to Mexico, China, and within the U.S. of late, Europe and the Middle East probably are seeing the greatest positive rate of economic change these days.
In particular, our time in Europe leads us to believe that we are witnessing an important and potentially pivotal moment. Overall, though, the global landscape is as dynamic and complex as Aidan and I can remember. Whether intended or not, President Trump’s agenda is inspiring Europe to invest much more aggressively in itself, a dynamic that the region has been lacking for some time. Our bottom line: this time feels different in Europe, and as such, we think the EU’s new self-help initiative, with Germany leading the way, warrants investor attention.
Overall, though, our travels across both Europe and the Middle East over the past few weeks underscore four significant changes unfolding across the globe. They are as follows:
- European Renaissance?! At a time when investors appear woefully underweight European assets ( Exhibit 24 ), the Continent is confronting the realities of the war in Ukraine/Russian aggression and the policies of the Trump administration, using these challenges as a catalyst to fundamentally reshape its economic model —both to safeguard itself and to accelerate growth. As such, we have revised our growth forecasts to reflect the likelihood of improved growth for the Euro Area economy. Notably we now expect real GDP growth of 1.0% in 2025, up from 0.8% previously, and 1.6% in 2026, up from 1.2% previously, with the main drivers being the proposed large fiscal injection from Germany (spanning defense and infrastructure). These events triggered the largest one day move in the 10-year bund yield since 1990, which one can see in Exhibit 4 . Our revised growth outlook is also supportive of our higher than consensus view on inflation, which we upgrade from previous estimates of 1.9% in 2025 and 2.2% in 2026 to 2.2% and 2.4%, respectively, due to the change in fiscal policies likely leading to a rise in inflation. We also upgrade our 10-year bund forecasts by 50 basis points, now targeting a long-term range of 3.25%, up from 2.75% previously. As we outline below, these developments represent a monumental shift in the approach to growth, security, and fiscal austerity—for the Continent as a whole, but particularly in Germany—and carry significant implications for macro and asset allocation professionals. This is especially relevant for those engaged with fixed income instruments in the region, including insurers.
- China: A Significant Change in its Messaging. Conversations with senior Chinese executives in the Middle East have strengthened our conviction that President Xi Jinping is shifting the narrative in China to be more capital markets friendly. Indeed, his recent statement that the private economy has great potential − combined with recent technological advances by Chinese firms such as DeepSeek – collectively represent what we think is an inflection point in the Chinese capital markets, one that some investors may still underappreciate. Even for those who don’t invest in China, we maintain our view that DeepSeek’s emergence poses a meaningful challenge to the Mag 7’s dominant position in global AI trade. The knock-on effect has already begun to impact the multiples of the market-cap-weighted S&P 500, a dynamic that we think now must be factored into future expected returns.
- America First. The America First agenda continues to deliver both near-term and long-term surprises. In the near-term, President Trump’s team is moving aggressively to implement tariffs on both friends and foes. As a result, we have lowered our U.S. GDP forecast to 2.1% from 2.5%, as we now assume 80 basis points of drag from tariffs, compared to 40 basis points in January. We are making this change, despite the reality that there is no actual revision in our base case modeling forecast for 2025 that—in aggregate—tariffs in the U.S. will increase from 3.8% to 10.8% of total imports. Longer-term, though, we think the messaging of the strategy is more sound. In fact, we are increasingly of the mindset that current Treasury Secretary Scott Bessent is signaling a strategy reminiscent of that of Bob Rubin, the former Treasury Secretary, who worked to jawbone the long end of the Treasury curve down during the 1990s. In both instances, these gentlemen have advocated for policies centered on lower deficits, less government crowding in markets and regulation, and more company-specific freedom.
- The Middle East: Think Differently. Another trip through this region underscores both its opportunity set as well as its unique complexities by each individual country. To state the obvious, there is no one ‘Middle East,’ but its collective growth and transition towards more of a diversified economy warrants investor attention. See below for details, but we see the region as a compelling destination for capital, especially across Infrastructure and Private Lending.
