Overview:

• The imposition on 6 July of a 25% tariff by the US on around $34b of imports from China, immediately followed by matching retaliatory measures from China, highlights the rising trade war risk. While measures implemented to date are too small to knock the global economy off track, the concern is that we are at the start of a cycle where retaliation leads to further retaliation and other countries start raising their tariffs to protect their industries from the fall-out. Even ahead of any further escalation of trade barriers, a risk is that financial market reaction or a decline in business confidence could hit activity, although it is not evident in indicators yet.
• Trade concerns have been one factor weighing on financial markets, as have political developments in Europe and pressures on some EM countries and associated EME capital outflows, which have seen a number of EM central banks raise rates.
• That said, the global economy remains in reasonable shape right now despite some pressures on Emerging Market economies. Advanced economy growth looks like it picked up in Q2 and business survey readings are still at solid levels. In contrast, growth in China and some other EME countries looks to have slowed.
• Overall, assuming current trade disputes do not get out of control, global growth is set to remain above its long-run average for now, but we think annual growth will peak at 3.8% in 2018, consistent with our leading indicator of global growth which is pointing to a moderation in growth in coming quarters. Our forecasts for the out years have not fundamentally changed.

For further details, please see the attached document:

• The Forward View – Global: July 2018 (PDF, 291kb)