This article is reproduced from: Wall Street News

The tide of the global economy is turning.

JPMorgan Chase’s latest research report pointed out that the prevalence of “American exceptionalism” in the past few years may be about to end. Since the pandemic, the U.S. economic recovery has been strong, far exceeding other regions, but now, the gap is narrowing.

This report, led by Bruce Kasman and Joseph Lupton, raises a key question: Can the long-term outstanding performance of the U.S. economy continue? Analysts originally expected the U.S. economic growth to slow to a potential level of around 2%, but factors such as trade frictions and fiscal tightening are expected to drag down other parts of the world (ROW), thus maintaining the U.S. relative advantage.

Recent developments, however, prompted JPMorgan to reevaluate its views. The United States seems to be turning to a stance that is not conducive to business, while Europe's finances are beginning to wake up, especially Germany.

The end of "American Exception"?

The report points out that several key factors that lead to the "U.S. exception" are reversing:

Expenditure: From 2023 to 2024, U.S. spending increased significantly, driving economic growth. But now, DOGE's expenditure may be significantly reduced. Instead, Europe is turning to a more stimulating fiscal, especially in defense and infrastructure.

Price shock: The epidemic and the conflict between Russia and Ukraine have caused inflation to soar in Europe. And now, as the possibility of a ceasefire in Ukraine increases, natural gas prices have fallen sharply. Meanwhile, the United States is facing a new price shock as tariffs will drive up inflation.

Supply side problems: In the past two years, productivity in the United States has increased significantly, while productivity in Europe has declined. JPMorgan believes that supply growth in the United States has been slowing as demand cools in the United States and migrant inflows slows. By contrast, supply in Europe is accelerating and is expected to recover further as demand recovers.

European recovery under the shadow of the trade war

JP Morgan has significantly raised its euro zone's economic growth expectations from 2025 to 2026, and is expected to grow by nearly 2%. The shift was largely driven by a series of fiscal stimulus announced by the new German joint, including infrastructure funds and defense spending exemptions from debt restrictions.

A chart in the report (Figure 2) shows that under the new euro zone fiscal stimulus, the euro zone economic growth rate is expected to increase significantly. However, if the United States imposes 25% tariffs on the USMCA, the U.S. GDP growth rate may drop to around 1%.

Rising risk of global recession

Although Europe's outlook improves, JPMorgan warns that the global economy still faces two major risks:

The U.S. launches a trade war with the EU, which will seriously drag down the economic growth of the eurozone.

United StatesTrade triggered a shock to business confidence, causing the U.S. and global economies to fall into recession.

JPMorgan raised the risk assessment of the global economy falling into recession this year from 30% to 40% (Figure 3).

The report states that the U.S. economic slowdown usually has an approximately 1:1 impact on other parts of the world (Figure 9). But if the U.S. economy slows down due to USMCA drag, then financial transmission channels outside North America may be more moderate.

Confidence Divergence: The United States weakens, Europe stabilizes

The report also points out that even if a full-scale trade war is avoided, the back and forth threat may still be enough to slow global growth.

At present, even if US business confidence begins to shake, confidence in the euro zone remains (Figure 10).

In February, both manufacturing and consumer confidence in the United States declined sharply. By contrast, confidence in Europe has not deteriorated significantly this year, although businesses remained sluggish overall.

It is worth noting that consumer confidence in the euro zone has been rising as American consumers show caution.

Conclusion: The world pattern is reshaping

This report by JPMorgan Chase depicts a picture of a major change in the global economic pattern.

The halo of "American Exceptionism" is fading, and Europe may usher in new growth opportunities. However, trade wars and uncertainty remain the sword of Damocles hanging over the global economy.

The road ahead is full of variables, but one thing is clear: the world is becoming less "American exception".