1. In a world in transition, companies are forced to invest or risk not surviving beyond it. This is why the central thesis of our economic scenario is that these transitions (geopolitical, digital, etc.) will fuel a sustainable investment cycle. However, the assumption of a new investment cycle changes the perspective on the strengths and weaknesses of economies. The simultaneous restart of investment in developed countries reveals advantages and imbalances that were not apparent in the "pre-pandemic world," which was dominated by deflationary pressures.

2. The main strengths and weaknesses of the U.S. and European economies act as "mirror images" of one another. The United States benefits from an ecosystem favorable to innovation, but the lack of savings makes it dependent on international capital. Conversely, the abundance of private savings in Europe is an asset, while the fragmentation of capital markets and excessive regulation hinder private initiative.

3. Accounting for nearly one-third of global consumption, the U.S. economy "over-consumes" relative to its share of global production (Chart 1). This excess consumption results in insufficient savings and a current account deficit (Chart 2), in contrast to the current account surpluses of Europe, Japan, and China (Chart 3). The need to attract savings was not a problem for the U.S. in a global environment of underinvestment and abundant liquidity. However, it becomes an issue if investment restarts simultaneously across all developed countries.

4. Europe plays a key role in financing the U.S. current account deficit. The European Union accounts for about half of foreign direct investment in the United States, followed by a trio consisting of Japan, Canada, and the United Kingdom, each contributing slightly more than 10%. Regarding portfolio investments, China has steadily reduced its holdings of U.S. Treasuries since 2016. Europe has taken over as the primary foreign creditor of U.S. public debt, holding 38% of foreign-owned debt—nearly one-tenth of the total U.S. public debt stock.

5. In the U.S., the issue of twin deficits is likely to resurface:
   i. In recent years, GDP growth has been supported by strong consumption (between +2.5% and +3.0% over the past three years), putting pressure on the current account deficit. This external balance is unlikely to improve in the short-to-medium term.
   ii. Healthcare spending linked to an aging population is driving a structural budget deficit. Based on projections for Medicare and Medicaid, the federal budget deficit is expected to range between 6% and 8% per year over the next 30 years, inevitably leading to a rising trajectory of public debt.

6. In conclusion, the U.S. dollar still benefits from its status as a "reserve currency," which ensures its role as a "safe-haven asset" in times of uncertainty, as was the case in 2022 during the start the war in Ukraine. However, the tension is rising between the dollar's recent strengthening and the deterioration of the twin deficits (Chart 4). The dollar now appears overvalued relative to the fundamentals of the U.S. economy. The trade war alone will not be enough to correct these macroeconomic imbalances. As a result, the Trump administration may be tempted to reactivate the lever of dollar depreciation.

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