Making your own luck
Small advanced economies provide useful perspectives on responding to a disruptively changing global economic and geopolitical context
There has been an avalanche of economic and geopolitical news over the past several weeks. From reciprocal tariffs to the role of the USD and changing geopolitical relations, the world is being rapidly reshaped. Decision-makers need to focus on the lasting structural changes amidst this turbulence, and the emerging opportunities as well as the risks. There is no going back.
Over the past few weeks, our clients have received notes with actionable insights on aspects of this disruptively changing world:
The Trump Administration’s economic agenda: beyond the noise, there are some core instincts that are shaping a far-reaching reset of US economic policy and global engagement.
The structural outlook for the USD: geo/political dynamics are intersecting with economic dynamics to create a new USD regime: less exorbitant privilege and a weaker USD.
The outlook for US tariffs: Expect tariffs to remain at roughly their 90-day pause levels (ex China); but tariffs will still be costly and disruptive even at lower levels.
Get in touch to discuss access to these notes and briefings, which provide insights into the structural global economic and geopolitical shifts underway. I’m at david.skilling@landfallstrategy.com
I have spent much of the past few weeks writing and advising on the impact of Trump Administration policy on the global economic and geopolitical context. But the organising theme for my note this month is small advanced economies, the canaries in the mine of the global economy because of their deep external exposures. These small economies also highlight the importance of agency: economies can prosper even in a challenging global economic context, with serious, high-quality policy. There may be unexpected winners and losers in this emerging world.
1. Global economy, interrupted
The IMF’s World Economic Outlook was released on Tuesday, marking down global GDP growth by a cumulative 0.8% in 2025 and and 2026 - 0.6% of which was attributed to the increased tariffs and accompanying uncertainty. Without tariffs, global GDP growth was forecast at 3.2%, but the IMF now forecast 2.8% and 3.0% for 2025 and 2026. It is the large protagonists that are most exposed: forecast GDP growth for the US was marked down by 0.9% and 0.4% for 2025 and 2026 and for China by 0.6% and 0.5%. And the IMF note downside risks to these growth forecasts.
Forecast GDP growth for the 12-strong small advanced economies group is 1.6% and 1.9% for 2025 and 2026, stronger than the overall advanced economy average. Growth forecasts for the small advanced economies group were only marked down by 0.2% for 2025 relative to the October forecast, compared to a 0.4% mark-down across the full advanced economies group. A fragmenting global economy is challenging, but does not inevitably lead to weaker performance by small advanced economies relative to larger economies. Small economies have a track-record of agility and resilience in response to shocks, and their strong domestic policy settings and institutions provide them with a competitive edge despite their exposures to a challenging global context.
2. Safe havens
The USD has weakened substantially since mid-January, despite heightened economic and geopolitical uncertainty - a context in which the USD would ordinarily be expected to perform. Neither have US tariffs supported the USD. Instead, there has been a measure of capital allocation away from the USD (which is structural in my view) in response to investor concerns about US political risk and US exchange rate policy. Some of this capital has been allocated to traditional safe havens (CHF, JPY, gold), as well as the EUR; but small economies with good fundamentals and strong political institutions have also performed well (such as the SEK). Capital likes jurisdictions that treat creditors and investors well.
Similarly, small economy equity markets have demonstrated a measure of resilience against the economic and geopolitical turbulence, particularly since Liberation Day. The S&P 500 is well down, but a roster of small economy equity markets are towards the top of the performance rankings since April 2. Equity markets are not pricing disproportionate small economy exposure to the costs and disruptions of US tariffs. It is larger economies (US, China) that are taking the bigger hit.
3. Concentrated small economy exposures
Ireland is highly exposed to US tariff, tax, and industrial policy given the number of large US MNCs operating in Ireland. MNCs account for ~45% of value added in the Irish economy. There is also a significant fiscal exposure. Ireland’s corporate tax revenue has surged over the past decade on payments from US MNCs, up almost 3.5x between 2019 and 2024 (and revenues to March 2025 are almost 2x a year ago). Reduced inflows of US investment - as well as the potential relocation of some MNC activity from Ireland - creates risks to Ireland’s growth model and fiscal position. Ireland has been diversifying its economy, with a greater focus on growing local firms into global markets, but US de-risking is now imperative.
Small economies also have high firm and sector-level exposures to external shocks - they tend to have concentrated export structures, with reliance on a handful of large globally-engaged firms. Novo-Nordisk in Denmark is a clear example; its market cap is currently ~50% of GDP, down from a peak of 120% in 2024. Novo’s growth has made an identifiable contribution to supporting Danish GDP since the pandemic, but this is now fading on specific competitive pressures as well as broader risks relating to US market access. This is not Nokia-level exposure (>200% of Finland’s GDP) but it is high. In a world of elevated background risk, small economies need to be thoughtful about managing firm and sectoral exposures to global economic and geopolitical shocks (note Switzerland, the Netherlands, and New Zealand).
4. Small economy hubs
Singapore Ministers have been blunt in assessing the impact of the changing global system. PM Lawrence Wong has delivered several speeches on the structural costs of the US tariffs - and Singapore’s exposures - which are worth reading/watching. And Foreign Minister Balakrishnan has noted that ‘If [the world trade system] collapses and everything becomes an infinite series of bilaterals, it’s going to be very hostile for small nations’. Some stresses are becoming evident. The advance reading for Singapore’s Q1 GDP growth was reported at -0.8% qoq. MTI has marked down its 2025 GDP growth forecast to 0-2% from 1-3%; the IMF forecast 2% for 2025, down from its previous forecast of 2.5%. But Singapore has navigated through multiple external economic shocks before, responding by investing aggressively in upgrading its competitive edge, and I am confident that it will do so again.
Indeed, it’s worth noting that other small economy hubs are performing well, and look resilient to a fragmenting global economy. In Dubai, for example, GDP growth is strong (partly on population growth); and equity markets and real estate prices are appreciating. Non-petrochemical export flows are surging. The UAE is well-placed to benefit from new trade and investment routes; and its direct exposure to the US is relatively limited. The IMF forecast UAE GDP growth of ~4% and above over the next several years. This is a reminder that there are opportunities as well as risks to small economies in this new world.
5. Fiscal space
In data released this past week, Greece reported a fiscal surplus of 1.3% of GDP in 2024 - and a primary fiscal surplus of 4.8% of GDP. It is one of only a handful of EU countries to generate a fiscal surplus in 2024. Greece’s high public debt is declining rapidly: the IMF forecast gross debt of 125% of GDP by 2030, down from 210% in 2020. The Greek economy is one of the best-performing in Europe (2.6% GDP growth in the year to Q4), and it also has one of the strongest equity markets in Europe. Significant economic and fiscal reforms have strengthened Greece.
More broadly, small advanced economies tend to sustain low levels of public debt. This is partly on a recognition of their greater exposure to external shocks, and is enabled by generally strong political institutions. This fiscal discipline provides additional fiscal space for strategic investment as well as to buffer future economic and geopolitical shocks, another source of small economy competitive advantage in the emerging world. Several large economies with public debt > 100% of GDP (US, UK, France, and others) will face growing financing challenges.
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