Global recovery slowing down a gear

There have been growing signs of a slowdown in the pace of the global recovery in recent months. World industrial production fell in July and retail sales declined in almost all major economies, while the business surveys suggest that activity softened again in August. To some extent, this moderation in growth has been benign, reflecting a natural normalisation of activity as the effects of past stimulus fade and output approaches or exceeds pre-virus levels. However, high frequency data on activities such as restaurant dining show that consumer caution has returned in some places as virus cases have risen again. What’s more, the surveys offer evidence that widespread shortages of goods and labour are limiting growth. With the notable exception of the euro-zone, we think that the rapid phase of the recovery is already in the rear-view mirror for the world’s major economies.
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PMIs: Omicron hit worse in the US than other DMs

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Peak global growth narrative lacks nuance

Slowdowns in China and the US should not be taken as evidence that the global recovery is stalling. Admittedly, it is not just some high-profile data from the US and China that have weakened recently. Recoveries in retail sales, industrial output, and trade more broadly have generally flattened off, while the PMIs have dipped too. But some commentators have cast these developments in too negative a light. Growth in the US is normalising after unprecedented stimulus and China’s economy is coming back down to earth from above-trend levels. Meanwhile, many survey indicators have merely edged down from record levels. And while the softer production and sales of goods can partly be pinned on shortages of materials and parts, they also reflect a benign reversion of consumer spending away from goods towards services as economies re-open. Most of the world is behind the US and China in re-opening and so is yet to reap the full benefits of lifting restrictions. While weaker growth in China will exert an arithmetic drag on global growth in Q3 and Q4, we expect a pick-up in growth in the rest of the world in the second half of the year.

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