The fiscal costs of One Big Beautiful Bill, metal prices slump and unlocking geothermal energy

05 June 2025

Summary

The OBBB sailed through the House in May but will face stiff opposition in the Senate this week, especially over planned Medicaid cuts and the phasing out of IRA energy tax credits and subsidies. The fiscal package – likely to be passed in autumn rather than by 4 July – includes the renewal of 2017 tax cuts, USD170bn of new tax cuts and a modest USD53bn of spending restraints, with an expected final cost of 0.4% of GDP compared to current policy. Offsetting extra customs revenues are unlikely to prevent the US deficit from rising above 8% of GDP next year amid rapidly rising interest expenses and dynamic federal outlays. With the fiscal picture rapidly deteriorating, bond market volatility is likely. Higher borrowing costs and tighter financial conditions would likely more than offset the growth-boosting effect of the OBBB amid a rise in precautionary saving and weak sentiment. This scenario could force the White House to engineer a fiscal U-turn and put debt on a sustainable trajectory. The worst-case scenario, albeit a tail risk, would see the Fed failing to contain spiking interest rates, and debt monetization leading to higher inflation and a sharp and rapid depreciation of the USD.
Industrial metals are slumping as global manufacturing slows, with copper down -14% from its 2024 peak and nickel plunging over -20%. China's weak recovery and Europe's ongoing manufacturing issues have dragged down demand, while rising output has deepened oversupply for steel and other metals. In contrast, gold has surged about +30% in 2025, breaking 3000 USD/oz as investors seek refuge amid US-China tensions and a weakening dollar. Central banks bought 240 tons in Q1 alone, signaling their intent to diversify reserves away from the USD. Meanwhile, US tariffs, which went up to 50% on steel and aluminum imports (except for the UK which remains at 25%), have driven Midwest aluminum premiums up +60% year-to-date, creating a price gap between global markets and US warehouses – and fueling further inflation concerns. These new tariffs could also mean up to USD2bn export losses for the metals sector in Canada over the remainder of the year, USD 1bn for Mexico, USD 0.6bn for South Korea’s metal sector.  
Amid rising electricity demand and growing infrastructure challenges, governments are increasingly seeking stable energy sources beyond variable renewables. Deep geothermal energy is emerging as a promising complement, offering reliable, low-carbon baseload power, grid stability and a small land footprint. Recent technological advances have extended drilling depths to 8km, boosting efficiency and resource potential twelvefold and making geothermal one of the most widely available energy sources. Despite obstacles such as high upfront costs and regulatory hurdles, investment in next-generation geothermal projects quadrupled between 2021 and 2023. If cost-reduction trends continue, geothermal could supply 8% of global electricity by 2050, requiring an estimated USD2.8trn in cumulative investments.
Ludovic Subran
Allianz SE
Maxime Darmet
Allianz Trade
Patrick Hoffmann
Allianz SE
Ano Kuhanathan
Allianz Trade