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Rethink Perspectives: how should investors respond to the rise of a new world order?
The world order is evolving. As the old powers lose some of their lustre, and new poles of influence emerge, the economic and geopolitical hierarchy is undergoing an upheaval. Today, this is seen in declining American exceptionalism, the rise of nationalism, the return of international power struggles and the gradual weakening of Western leadership.
What kind of world is emerging? How can Europe adapt to the China-US face-off? And what investment strategies should we adopt in this uncertain landscape?
To answer these questions, leading financial and political thinkers took part in the latest of our Rethink Perspectives events, held recently at IMD in Lausanne. With moderation by Stéphane Pedraja, Head of Lombard Odier’s Lausanne, Vevey, Fribourg and Verbier offices, an invited audience was joined by Xavier Bonna, Managing Partner at Lombard Odier; Samy Chaar, Chief Economist and CIO Switzerland at Lombard Odier; and Gérard Araud, former French Ambassador to the United States.
Though the US is “transitioning towards an economic slowdown,” the country should avoid recession
Between opportunity and instability
Opening the event, Xavier Bonna noted that today’s investment environment is characterised by paradoxes. “On one hand, a climate transition is underway and is accelerating, new discoveries have been made in the healthcare field, technological advances are dazzling, and new business models are offering some very interesting investment opportunities,” he said. “However, the world around us is becoming a little more volatile with every passing day, a little more uncertain and difficult to interpret geopolitically, economically and socially.”
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Picking up on this theme, Samy Chaar agreed that “2025 is a year in which the narrative has changed.” A key part of this narrative shift, he explained, is an economic slowdown in the US, caused largely by two factors: business uncertainty, particularly as regards import prices, and the inflationary effects of Trump’s tariffs and other US protectionist measures.
“Trump has brought an initially less pro-business attitude than was foreseen, generating a climate of uncertainty. We have also had tariffs of not just 5-10%, but 15-30%,” he said, noting that the tariff strategy has been more aggressive than most observers had expected. “We are moving towards temporary inflation of around 3.5% for 2025, due to the tariffs,” he continued, adding, however, “this level remains below average wage growth, which means we are likely to see lower real incomes, but no contraction.” Though the US is “transitioning towards an economic slowdown,” the country should avoid recession, he concluded.
There is one decisive reason for this, he explained – the resilience of the labour market. “As long as Americans keep their jobs, consumption will be maintained. But the risk of a shock to purchasing power remains real,” he warned, reminding attendees, “this slowdown is self-inflicted.”
Another key factor mitigating against recession is the new US budget, passed recently by the House of Representatives. “This budget is not going to reduce the US deficit, but it won’t increase it either,” said Chaar, noting that the deficit should remain at around 6-7% of GDP until 2028. However, he warned, “The quality of the deficit is declining. It’s no longer mainly financing future investments such as energy, technology and defence, but badly targeted tax cuts for people who don’t need them.” These measures, he explained, stimulate neither consumption nor investment, thereby increasing the cost of financing the debt over the long term.
How should investors react? “By prudent reallocation,” Samy Chaar explained. “At Lombard Odier, we have progressively reduced our exposure to US equities, to the dollar and to tech, reorienting portfolios towards Europe, emerging markets and alternative currencies. We are adding lines of defence to stabilise portfolios.” With this in mind, he said, gold, the Swiss franc, private lending, and structured solutions for eligible investors, are all used to build resilience into portfolios.
Gold, the Swiss franc, private lending, and structured solutions for eligible investors, are all used to build resilience into portfolios
Europe called upon to react
As the world order evolves, Europe must react, Samy Chaar continued. “The interdependence model no longer exists. We have tipped over into a much more fragmented world. Today, interdependence is a source of vulnerability, it is no longer a key asset.”
To mitigate this vulnerability, and catch up with the US and China, Europe must undertake a massive effort to regain domestic control of four strategic industries: energy, defence, technology and infrastructure.
“The Americans have put USD 3,000 billion on the table, i.e. the equivalent of two Marshall Plans, to invest in key areas of domestic security. The Europeans, for their part, are stuck in neutral at the moment,” Samy Chaar said.
However, he continued, the recent announcement by Germany of an EUR 600 billion investment plan could represent a notable inflection point and an economic kick-start for the continent. “More investments will have to be accepted, by appealing to the financial markets, and thus accepting more debt. This is okay, provided it’s put to work in productive investments such as energy independence, defence, infrastructure and technology,” he said.
Contrary to received wisdom, he explained that Europe’s budget position is robust. “Most countries are showing current accounts in balance, indeed in surplus, which provides room for manoeuvre. If you look at France, for instance, taking into account the private savings surplus – of households, banks and companies – France is a country with a balanced current account. The same is also true of several other European countries.”
American withdrawal and European isolation
Gérard Araud followed Samy Chaar’s macroeconomic analysis with a look at the geopolitical landscape. “Donald Trump is not the disease, he is the symptom of the disease,” Araud began. “We have to try to understand what is signified by the crisis, of which he is the noisiest symbol.”
The US no longer wishes to be “the world’s policeman,”. “Today, the United States’ priority is to deal with its own internal affairs rather than the rest of the world.”
“It’s the same crisis as the far right in France and in all the liberal democracies,” Araud continued. “It’s an internal political crisis which has absolutely critical consequences for geopolitics, coinciding with the tipping point in the world order. The West has lost its lustre. The world that we have dominated since the fall of the communist bloc at the beginning of 1990 is coming to an end.” In its place, he said, we are seeing “a general rebalancing of power relationships.”
This rebalancing is seen most notably in the return of Russia, the growing weight of powers such as India and Brazil, and above all the emergence of China. “In 1975, China’s GDP, in purchasing power parity terms, was 15% of US output. Today, it’s 115% of America’s GDP, and that happened in less than half a century,” Araud explained.
The US no longer wishes to be “the world’s policeman,” he continued. “Today, the United States’ priority is to deal with its own internal affairs rather than the rest of the world.”
Europe’s position, meanwhile, has become more fragile. “It’s clear that in American eyes Europe is now at the world’s periphery,” Araud said, as illustrated by the progressive US disengagement from Ukraine. “If Trump abandons Ukraine, what will the Europeans do? Will they go and fight?” he asked. With a fragmented European defence industry, that is technologically dependent on the US and currently incapable of matching Russia’s weapons production, “nothing is less certain,” he said.
“We are 27 countries with extraordinarily different geographies and histories,” Araud explained, a feature which makes it difficult for European countries to take joint decisions. After decades of “living in a paradise under the Americans’ star-spangled banner,” he noted that the West is “taking a beating from world power struggles,” which is marked by division between the US and Europe.
Beijing is no longer content with its status as an economic superpower, but also wishes to create a new international order via the BRICS+ bloc, the New Silk Road infrastructure programme, and a series of informal alliances
Relationships governed by conflict – and common cause
“We are entering a world of geopolitics, where only power struggles count for anything,” Araud said. However, he continued, “The great powers are still united by common challenges.”
The greatest of these, he said, is climate change, which neither the United States nor China can deal with alone. “Humanity has problems in common. This is a challenge that only the Europeans can take on,” he said, citing the Paris Climate Accords as an example of diplomatic leadership. “Europe managed something that everyone thought was impossible: getting all the countries to sign.”
Intermediate powers – from Indonesia to Brazil – should become strategic interlocutors for Europe, if the Old Continent is to maintain its position of strength in a reshaped world
Faced with growing polarisation between the United States and China – where Beijing is no longer content with its status as an economic superpower, but also wishes to create a new international order via the BRICS+ bloc, the New Silk Road infrastructure programme, and a series of informal alliances – Gérard Araud called upon Europe to diversify its partnerships.
“This vision of the world has a fault: it forgets 190 countries which do not actually want to fall into spheres of influence,” he said. India, for example, is no longer merely a non-aligned actor, but an autonomous power following its own diplomatic and strategic path. Likewise, Africa, long marginalised, is becoming a major theatre of influence, where China and Russia are reinforcing their presence against the background of a European retreat. For Araud, these intermediate powers – from Indonesia to Brazil – should become strategic interlocutors for Europe, if the Old Continent is to maintain its position of strength in a reshaped world.
At Lombard Odier, Rethink Perspectives highlighted our approach to navigating troubled and volatile markets. In times of rapid change, it is easy for investors to feel they must act ever more quickly. However, after more than 225 years, and having grown stronger through more than 40 financial crises, we take a different approach. We believe that as the world speeds up, investors should calmly take a step back to view the bigger picture, to see the fundamental long-term economic system changes taking place all around us – that will underpin tomorrow’s economy long after today’s short-term geopolitical upheavals have subsided.
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