The global economy is likely to expand at a decent pace in the second half ofthe year, despite escalating tensions in Greece and the recent gyrations in China’s equity market. Business surveys have weakened a bit in the past few months but they, along with other evidence, still suggest that growth will rebound after a disappointing first quarter. The unemployment rate has fallen further in most advanced economies and is approaching levels consistent with “full employment” in the US and UK. Meanwhile, it looks increasingly likely that Greece will be forced out of the euro-zone in the coming months, whatever the outcome of the referendum. But Greece accounts for only 0.3% of world GDP; moreover, contagion should be limited in Europe and negligible further afield. This will leave the US Fed free to begin raising rates before the end of the year, most likely in September.
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