Overview

• Global inflation continues to trend lower. Our global CPI indicator rose 5.3% yoy in June, its lowest reading since October 2021, and consumer prices in China slipped into deflation in July 2023. While commodity prices have trended higher since the start of June (led by energy), monthly core inflation for the major AEs in June was 0.2% m/m (as was US core CPI in July) pointing to underlying improvement.
• The easing in inflation pressures means that the global monetary policy cycle is likely getting close to its peak. Markets are not fully pricing any more increases in rates by the US Fed or the European Central Bank, while some EM central banks have started cutting rates (although further increases by some central banks, such as the Bank of England, are still expected).
• There was a broad-based pick-up in major advanced economy growth in Q2, underlining the resilience shown by these economies to a series of shocks last year. However, global growth likely eased with a slowdown in China and, we expect, a fall back from the strength in Q1 in some other EMs including India.
• Business surveys have turned down in recent months. Already weak manufacturing sector readings have edged down further while the global services PMI, which rose strongly through to May, has fallen back over the last two months.
• We have revised up our 2023 forecast to 2.9% (from 2.8%) but this remains low by historical terms, and we still see growth weakening further in 2024 (2.6%, previously 2.7%). This reflects several factors, including the full impact of past monetary policy tightening, with a tightening in bank lending standards underway, and that the world’s largest economy – China – is struggling.
• That said, the chance of a soft-landing in the major advanced economies has increased, with inflation clearly falling even with stronger than expected growth. However, how far inflation falls is uncertain and labour markets remain tight, so further policy tightening remains a risk. There are also still geopolitical risks (e.g. the Ukraine/Russia conflict).

For further details, please see The Forward View Global (August 2023)