Panel, Fireside Chat, Conference Presentation
The State of the Global Economy: Global Capital Markets | Global Conference 2025
Milken InstituteDavid Faber, Waleed Al Mokarrab Al Muhairi, Jane Fraser, Jenny Johnson, Harvey Schwartz, Andrew Sullivan
- Global policy events and tariff impacts are expected to unfold slowly over a three-phase timeline: an immediate pull-forward of spending, a second phase of corporate limbo suspending investment and hiring, and a final phase where supply and pricing dynamics solidify.
- A 10% tariff rate is forecast to be absorbed by clients, whereas rates of 25% or higher are predicted to catalyze significantly different market dynamics.
- Clients are preparing for headwinds by pulling spending forward, strengthening balance sheets, and remaining active in markets while awaiting clarity, with the current environment introducing short-term friction that should settle once policy certainty emerges.
- Policy uncertainty is anticipated to cause a slowdown in investment, hiring, and transaction levels, with real estate funding already pulling back, though economic improvement is expected to follow the achievement of policy certainty.
- Market stability is forecast with the S&P 500 likely experiencing only a couple of percent decline despite fragility, while portfolio companies will prioritize capital protection and financial flexibility over disrupting client relationships.
- Significant market clarity is expected to emerge over the next three weeks to four months, allowing capital to be deployed once uncertainty decreases, with a point of equilibrium reached as quickly as negotiations conclude.
- The US remains the best risk-reward destination for capital, with Mubadara's over $100 billion allocation expected to remain unchanged as the general investment equation does not shift.
- Global dynamics are shifting toward a multipolar world requiring new partnerships and defensive strategies, a trend expected to gradually accelerate over a five-plus year timeframe rather than occurring within one to two years.
- Capital flows are anticipated to increasingly shift toward the Middle East, specifically Abu Dhabi, creating a virtuous cycle of fund formation and wealth relocation from Europe as the US retains its status as the leading capital market despite structural debt imbalances.
- Abu Dhabi's economy is forecast to grow north of 5% next year, while capital demands are expected to rise significantly over the next five to ten years due to defense spending, Ukraine rebuilding, and onshoring.
- The marginal cost of capital is predicted to trend higher over the next 10 to 15 years, with demands growing extraordinarily even if the relative share of capital from the US fluctuates.
- AI is forecast to be the world's biggest productivity booster, with significant market impacts expected in five, 7, or 10 years compared to tax policy or tariffs, primarily through agentic use cases for coding, customer service, and automating IT departments.
- AI will drive real scale benefits in arranging financings for energy and data center capital, with early evidence of efficiency in underwriting already visible, such as reducing process times from 10 days to three hours.
- Europe may catalyze a savings and investment union due to the urgency of deploying $11 trillion in deposit accounts, though skepticism exists regarding whether current turmoil will successfully strengthen European capital markets.
- The trend toward a multipolar world is expected to see capital flows shift toward the Middle East, while unlocking economies like India and China will expand the global economic pie and create ancillary opportunities for the US.
- A flurry of activity in the next year is anticipated regarding firms creating vehicles for private credit liquidity for retail and affluent investors, though daily liquidity remains an issue as assets may need to be sold at a discount during sale events.
- Private credit growth is expected to be driven by the need for protected income as the number of people over 65 doubles between now and 2050, while services-based portfolios are expected to remain less impacted by trade policy shifts.
- A trade war between the US and China is feared to pressure both economies and bleed into the global economy, while meaningful progress on renewing tax cuts is needed to calm the market significantly.
- Long-term employment is expected to be better and the economy pro-growth despite short-term transition challenges, with early AI-driven efficiency improvements in underwriting already boosting ROI and bottom lines.