Overview

• Growth in the major advanced economies bounced back in Q2. GDP growth was stronger in Japan and the US, and broadly unchanged in Western Europe. We expect growth to be more moderate in the second half of this year even as labour markets continue to show signs of easing. Notably the US unemployment rate has risen in each of the last four months.
• Nevertheless, the better than expected Q2 GDP growth in Japan and the US, sees us lift our near term global growth forecasts while our expectation that the Fed will ease policy rates more quickly than previously considered (a change made earlier this month), sees an upwards revision further out. We still expect global growth to remain below its long-term average of 3.4% through to 2026.
• The rise in the US unemployment rate in July stoked fears that the US may be entering recession and, coupled with policy tightening by the Bank of Japan, lead to turbulence in financial markets in early August. This included large falls in equity prices, although markets have fully recovered since. While we see US growth slowing in H2 2024 we do not expect the economy to contract.
• The softer trend in emerging market business surveys continued in July, with the EM composite PMI in July recording its weakest reading since November 2023.
• Even though its domestic demand remains subdued, China’s Third Plenum did not address this problem. Instead, it focussed on national security and industrial policy, including investment in “new productive forces” – sectors such as electric vehicles, batteries and renewable technologies. These industries were amongst those targeted for tariff increases in the United States and European Union in recent months. The surge in Chinese exports since mid-2023 has also seen countries in South-East Asia announce, or indicate that they are considering, trade restrictions on imports from China. As a result, trade risks remain elevated even ahead of the US Presidential election in November.

For further details, please see The Forward View Global (August 2024)