Spanish economist Daniel Lacalle argued at this year’s ULI Europe Conference in London that much of what people call “uncertainty” are better understood as “things that we know are going to happen but we don’t want them to happen”.
Providing a macroeconomic picture, the chief economist at Tressis and professor of global economics at IE University and IEB, said we “expect to close our eyes and for them to go away”. But, he added with optimism, “believe it or not, the world is getting a lot better”.
He viewed the current economic climate as a consequence of past policies that had extended economic boundaries, identifying a “number of elements” that have been “massively surpassed” by governments, leading to what he termed an economic crisis.
The first is that the economic limit of government debt has been breached in developed economies. He pointed out that GDP figures can be artificially inflated by increased government spending, even while “people are losing purchasing power”. The US economy’s growth in 2024, for instance, came entirely from “1.7trn of GDP… deficit spending”, which he regarged as “massively unsustainable” and a precursor to “higher taxes, higher inflation, lower productivity growth and lower real wages”.
Second is that the fiscal limit is now a “real and significant element of change globally”. Governments that raise taxes rarely see corresponding revenue increases, leading to continued deficits. A stark example is Japan, where “interest expense, despite low interest rates, takes about 25% of the… budget”, a trend soon to be mirrored in the US.
The third is inflationary and Lacalle highlighted the unprecedented money supply growth between March and September 2020 – “more than the entirety of the history of those currencies prior”.
This, he said, directly led to inflation, including “massive asset inflation” during a period when official figures suggested there was no inflation, followed by significant price inflation where CPI calculations were “gradually adjusted over and over again”. This cycle has resulted in “economic stagnation”, which he deems “the big challenge”.
Lacalle also spoke about a big change in global finance, saying that “gold has already overtaken the euro as… the leading central bank reserve asset”. This reflects a growing distrust among central banks towards “sovereign issuers” as reliable reserve assets, as these are “not providing stability to their currency, are not providing returns and are not providing price, price improvements”.
Meanwhile, for the third consecutive year developed economies’ central banks “are losing money” on their purchased assets, undermining confidence in their own currencies and debt. He said: “Public debt and currency is exactly the same.”
Lacalle said that, while the US is solidifying its position as a “global leader in energy, as a global leader in technology”, and China is “competing” for its role as a financier, both nations possess “very, very strong weaknesses”. The US’s weakness is its “fiscal position”, with unsustainable deficits driven partly by “tremendous trade barriers” implemented globally.
He said “tariffs are the norm in global commerce”, and their widespread use has contributed to “stagnation”, lower productivity and investment growth.
Gold reins in spending, signals optimism
“Gold is playing the role that central banks should have played” in curbing excessive government spending, Lacalle said, and he welcomed the fact that governments “cannot issue all the debt that they want whenever they want and however they want”.
This shift is even “waking up the European Union” to the reality of fiscal responsibility, challenging the assumption that spending can continue without accountability.
Despite current anxieties, Lacalle presented a notably optimistic forecast – “2025 is going to be the best year of humanity”, he said as he explained this optimism by forecasting “real wage growth instead of nominal wage growth” as “inflationism is on the way out” as an alleged solution.
He pointed to encouraging signs including China addressing its real estate challenges with supply-side measures, the Chinese central bank buying gold over government bonds and the US beginning to debate mandatory spending. Lacalle highlighted Asia as “leading the world economy in terms of innovation”, particularly demonstrating that “artificial intelligence creates more jobs, not less”.
Despite its “excessive regulation”, Lacalle said he saw a “fantastic opportunity” for Europe, with its capital and human talent, provided it sheds the illusion of “printing more money” as its way out of challenges.
Lacalle urged attendees to avoid “presentism”, thinking current woes are the worst ever, “nostalgia”, believing the past was easier, and “dystopia”, predicting no jobs or growth.
Instead, he foresaw “an incredible period of innovation that is going to burst in terms of not only innovation productivity, but wage growth and improvement, precisely because we are abandoning… the inflationist policies that have destroyed productivity and real economic growth in the past 20 years”.
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