OECD Slashes Growth, Dutch Government Falls, KKR Quits Thames Bid
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This is the Bloomberg Daybreak Europe podcast, available every morning on Apple, Spotify or wherever you listen. It's Tuesday the 3rd of June in London. I'm Stephen Carroll. And I'm Lizzie Burden. Coming up today, the OECD slashes global growth forecasts with the US expected to be hit hardest.

Geert Wilders triggers a snap election in the Netherlands as he pulls his far-right Freedom Party out of the ruling coalition. Plus, a deal goes down the drain. KKR pulls out of Thames Water's equity-raising process in a blow for the struggling British utility. Let's start with a roundup of our top stories. The OECD has slashed its growth forecasts due to US President Trump's trade policies.

The organisation expects global economic expansion to slow to 2.9% this year, down from the 3.1% it was expecting just three months ago. Meanwhile, it sees US growth tumbling to 1.6%, down from the 2.2% it was forecasting in March.

Our senior editor, Bill Ferry, says there's one word that's driving sentiment lower. Uncertainty takes a toll. There is a wild amount of uncertainty in global economic forecasts right now, given the uncertain trade tariff battles going on. We're in that 90-day pause from the U.S. reciprocal tariffs.

We had U.S.-China tariffs jump to 145% before falling down into the double digits again. Even in double digits, they would be far higher than historical levels. Bill Ferry is speaking there. The OECD published its forecast just as its members' ministers convened in Paris for an annual meeting with top representatives from the U.S., EU and China all scheduled to attend.

Well, meanwhile, the OECD says that the UK Chancellor, Rachel Reeves, will expose the economy to significant downside risk if she doesn't create more fiscal headroom. The organisation predicted Britain will be the second fastest growing economy in the G7, but warned the state of the public finances was a significant downside risk.

The Chancellor is under pressure from her party to spend more on welfare and public sector wage rises. The headroom Reeves has left against her target is so tight that even small moves in borrowing costs can erase it. Well, the weakening economic outlook comes as the White House said that President Donald Trump and Chinese President Xi Jinping are likely to speak this week.

Beijing hasn't commented on the prospect of a direct conversation. The leaders of the world's two largest economies haven't spoken since Trump's inauguration. Meanwhile, China says that the US has seriously undermined a recent tariff truce with its decision to impose a range of new restrictions on the country. Bloomberg's chief geoeconomics analyst, Jennifer Welch, is urging caution over expectations of an imminent call.

If a phone call happens this week, I think that is a good thing for trade negotiations. It probably will help restart momentum or at least clear the air in a way in which these tensions aren't kind of boiling on the back burner. But I think a call is unlikely. And what that means is that tensions could continue to boil because they're only being addressed really at lower levels. And it would take a higher level engagement to put them to rest or at least to put them into the background to the point where they're not interfering with talks further.

Jennifer Welch from Bloomberg Economics there. Speaking as a private survey showed that China's manufacturing survey had its worst slump since September 2022. The Kaixin Purchasing Managers Index fell to 48.3 in May as higher U.S. tariffs took a toll on the country's smaller exporters.

Well, the weaker than expected data from China comes as President Trump's 90-day pause on his so-called reciprocal tariffs is coming to an end next month. But as the deadline looms, the White House is struggling to secure trade deals. The European Union's preparing for another round of talks with the US tomorrow. The bloc's trying to fast-track negotiations before the July 9th deadline, when Trump said he'd hit nearly all of their imports with a 50% tariff.

However, the EU has warned that it may speed up retaliatory measures if the US president follows through on his repeated threats, despite promising that a range of deals are just around the corner. So far, only the UK has reached an outline agreement with the US on tariffs, and that deal still isn't in place.

Kiert Wilders has pulled his Freedom Party out of the Netherlands' ruling coalition. The move collapsed the government and automatically triggered a new election. Wilders chose to walk away from the government after his three coalition partners refused to agree to his plans to curb migration.

The Freedom Party had proposed closing the border to asylum seekers, temporarily halting family reunification and returning asylum seekers to Syria. The AEX index engaged tracking the 25 largest stocks listed on the Euronext Amsterdam fell as much as 0.5% before pairing some of the loss.

KKR has pulled out of plans to take a stake in the distressed utility company Thames Water. The UK's largest water company announced KKR had indicated it would not be in a position to proceed after a completed due diligence. Thames faces a government takeover if it can't find a private buyer willing to take on its billions in debt. Swiss is telling Bloomberg that a rival bidder, Scottish provider Castle Water, is said to be ready to step in and give Thames Water equity.

And Standard Chartered CEO Bill Winters says that the UK is overdoing it on regulation. Speaking to Bloomberg, the UK bank CEO was asked about how to drive growth and he said there are vast numbers of regulators in Britain. We've erred on the side of very, very extensive microprudential supervision. We've got really huge numbers of individuals in the UK, in the PRA and the FCA, who are focusing on our business.

And I think, one, they're too intrusive, it's too costly, and two, I don't think you actually get a good return on that because at some point the board and senior management start to think, well, if it's okay with the regulator, it must be okay. The Standard Chartered CEO added that the cost of capital for a bank is now significantly higher than the private credit company. His comments come as Britain's government is debating deregulation, including ring-fencing rules brought in after the great financial crisis.

Those are your top stories on the markets. The stock 600 is three tenths lower this morning. The FTSE 100 is down by two tenths of one percent. The Dutch market four tenths lower after that news around the collapse of the Dutch government on Wall Street. S&P, Mini Futures and Nasdaq Futures both half a percent lower. A touch of strength in the dollar today, up a tenth of one percent after the recent weakness. The euro is trading at 114.18 against the dollar. And the 10-year Treasury yield down two basis points at 4.42 percent. Well, in a moment, we're going to dive into that OECD report and the latest in Dutch politics.

But first, Stephen, another story that caught our eye this morning. How making an ideological AI might be more difficult than it seems. Something our opinion columnist Dave Lee has been writing about, and in particular in reference to Grok, which is the AI on Elon Musk's X platform, which promised to be a non-woke alternative to chat GPT,

And it's rivals. Dave writes, the problem with that idea is that answers that AI provides are generally based on data. It's scraped off the internet. The technology can be either non-woke or truthful, but not both at the same time. And he points to several efforts that are made both with Grok, but also with other AI chatbots as well to try and manipulate those results or steer them in a particular direction. Essentially, it doesn't work. Nobody ends up happy at the end of it.

And it is a challenge as we're using these sort of chatbots more and more to see what exactly can be

I suppose what can be done with it, and as Dave puts it, while appealing for some artificial selective intelligence, is of limited practical use. You can read the full piece on Bloomberg.com forward slash opinion. Well, let's get more on those latest forecasts from the OECD now, showing that the impact of Donald Trump's trade policies is really having an impact on the global economy. And our markets reporter Valerie Tytel joins us now for more. Val, I want to start with what the OECD says is the impact on the US, slash the growth forecasts.

How does it compare to what the Fed and markets are expecting? Yeah, so they've slashed their growth forecast, but it's really just the same as what economists across the street and even the Fed have done in the last few months is downgrade their outlook for U.S. growth. I want to say, though, that the OECD numbers are still a bit more positive on U.S. growth than the consensus analyst estimate on Bloomberg. They're calling for 2025 U.S. growth to be 1.6%. The consensus estimate at the moment,

is around 1.3. The Fed's estimate is also around 1.7, but the last time they gave an estimate was back in March. They're due to give estimates and projections at their next meeting, so that estimate might be a little stale. But it just goes to show that there has been a big downgrade of U.S. growth from kind of the exuberance that we felt in January, all that off

Optimism when Trump came back into the office. Estimates for 2025 GDP were north of 2% and they have been knocked down in the last few months due to the uncertainty that the administration has released and also the trade war possibly denting economic activity. And of course, that uncertainty is something that markets are having to be parsing in real time as the developments play out. The latest is that whether or not Donald Trump and Xi Jinping will speak directly. The White House says yes. China says they have no information about a potential conflict.

call. I mean, how are markets perceiving this? I feel like we just went through this a few weeks ago, didn't we? Did they speak on the phone? Did they not speak on the phone? But I mean, net net, it would be a great thing for risk assets generally if Trump and Xi did get on the phone and spoke to each other. There is a thought out there that there is a need for a high level call in order to get over some sticking points and some issues in order to start

this discussion between these two world's largest economies. We even heard from former U.S. trade negotiator Kelly and Shaw earlier this morning saying it's not unusual to see a high level leader call before there is a breakthrough in progress. But A.

Asian markets were quite positive overnight on the fact that the White House said that it's likely to happen this week. So we'll continue, I guess, to trade headlines on what the White House says and what the China foreign ministry said. They said they had no information to share on any Trump Xi call. So that's the U.S.-China talks or lack thereof. Meanwhile, the U.S. Trade Representative Jameson Greer is in Paris for this OECD ministerial meeting that's happening this week.

He's got a lot of meetings potentially in his diary, but a market's expecting progress on specifically the talks with the EU. I think there's a lot of pessimism about the prospect of the US and the EU coming to some agreement before the pause and the tariffs roll off. Remember, that date is early in July, so less than around a month's time. And it doesn't seem...

It doesn't seem it's hard for the market to obviously price that in, given there's still a lot of time between now and then. But it doesn't seem like from what I'm reading, there's a lot of positivity around the outlook of getting something done before that date. Remember, it was only two weeks ago that Trump had to threaten 50 percent tariff on the EU just to get them to write something down on paper to present to them about what they want out of these negotiations. So it does seem like it's come to a sticking point.

I don't know if the market's going to pay too much attention to it. It's more focused on maybe the more likely deals to come, that being with the Asian nations like Japan and South Korea that seem a bit closer, at least to getting, you know, not an agreement, but something on paper as a, you know, kind of what the EU, what the UK signed with the US a few weeks ago. OK, Valerie Tytel, our market supporter, thank you very much for joining us.

When you have bars in the sky, onboard showers and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

If you're going there, so are we. Book now on Emirates.com. Fly Emirates. Fly better. How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business.

From fast, free shipping to in-depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to AmazonBusiness.com for support.

Now to the European politics. The Dutch government has collapsed after the far-right leader Geert Wilders announced that he was pulling his party out of the coalition. Now the move comes after his three partners failed to back his Freedom Party's plan to curb migration. And for more, we're joined by our EMEA News Director, Rosalind Matheson. Ros, just take us through the latest because this has been a fast-moving story this morning.

Well, that's right. And in a way, this government has been inherently fragile for months. And there's been these bouts of uncertainty where Wilders has threatened to walk away or there's been tension over things, including migration policy. And he surprised us a little bit this morning by actually saying that he is going to withdraw and thereby triggering the collapse.

of the government and a move to an election. And it's just been these long running tensions over his push for quite a strident plan on migration. He wants to shut the borders. He wants to make sure that Syrians return to Syria. He wants a temporary pause in family reunions and so on. It struck strife within his coalition, which is actually

actually a centre-right coalition already, and it's just been a long-running vein through the government. And so this time it seems like he has decided to...

to walk away. The question is what is he hoping to achieve by this? He was barred from being Prime Minister even though he performed strongly in the last election and he was barred from being Prime Minister as part of the coalition conversation. Is he hoping by collapsing the government and triggering a new election that he might get another go at it? So what happens next from here where we're heading to an election?

Well, that's right. We're not exactly sure when the election might be, but it might be within a matter of months. In the meantime, there needs to be some sort of continuity, at least, of administration in the Netherlands. And, you know, we expect that we'll get a lot of parties out there very quickly starting to campaign. It was interesting because Wilders' party had been fading a little bit recently.

for a while, but it's resurgent again in the polls just in recent weeks because, again, he's been leaning really heavily on his anti-immigrant rhetoric, and that seems to have given him a pop in the polls, perhaps, again, a factor in his thinking. So the question is, for the Netherlands, a country that, like many countries,

in Europe and beyond is grappling with some quite difficult issues around migration and that conversation in society is proving quite fraught. You know, does he really amp that up going into an election? And again, what are his intentions out of that? Well, yeah, what does this mean more broadly for Europe and the Netherlands place?

in Europe. Of course, we've also seen Donald Tusk calling this vote of confidence after the far-right candidate there, the right-wing candidate, won the presidential election in that nail-biting victory. What's the balance of power now in Europe this morning after all of this?

Well, it's interesting because the Netherlands had particular issues around migration, of course, you know, a long-running decline in things like the shipping industry and factories in port cities like Rotterdam, and that's kind of been fertile territory for some of these narratives.

But it's a similar story in other countries in Europe. You've got challenges around housing. And again, the migration debate seems to be rearing its head again. And, you know, as you say, in the Polish election, we saw the result there where the nationalist candidate won the presidency. And that's going to create all sorts of complications for the government of Tusk going forward. And part of it was about really bringing Poland very much into the EU tent.

and similar for other countries, and whether their policies on migration go out of alignment with the EU more broadly. And then you get all sorts of tensions around access to funds and so on. So it'll be very interesting to watch the debate in the Netherlands. But as you say, there's quite a read-through to other parts of Europe.

And the question of migration, as you mentioned, central to a lot of the political debate that's happening in many countries. In Germany, next door, we're seeing the current government under Friedrich Merz also trying to change migration policy, reacting to the strong performance of the far right in the last election there only a couple of months ago. Is this something that we're seeing any sort of coherent policy emerging as to how European countries will now approach this issue?

Well, it's interesting because it does tend to bubble up at the same time in different countries. And you mentioned Germany being a case in point. But there doesn't necessarily seem to be a lot of coherence and cooperation in the way that politicians are acting because fundamentally they're acting out of self-interest in their own country for their own voters. And so the messaging is a bit different. I mean, in Germany, Mears has to tread carefully. He can't be seen to be getting too close to...

to the far right AFD. And he's, you know, obviously very clearly ruled out cooperating with them in parliament. And there is a level of concern in Germany about taking that narrative too far to the right. So, you know, you do get these threads that are coming up at the same time, but again, it doesn't necessarily mean that they're all getting on the phone, talking to each other and working out their policies. And interestingly, you know,

the far right and the centre right in Europe isn't necessarily one big autonomous moving beast. There's a lot of differences in those parties and sometimes there's a lot of disagreement and they don't necessarily get on. You can see that obviously in France and Italy.

between Le Pen and Maloney, for example. So it's not necessarily a coherent movement is what I'm saying and differences do arise. But it's interesting because that conversation is cropping up again in a bunch of places at the same time.

This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning on Apple, Spotify and anywhere else you get your podcasts. You can also listen live each morning on London DAB Radio, the Bloomberg Business App and Bloomberg.com.

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