The US economy looks set to regain some momentum in the second quarter after a weak performance in Q1 as the drags from previous dollar strength and the slump in oil prices continue to fade. But activity in the euro-zone will probably slow and there is mounting evidence that the UK economy has been adversely affected by fears of “Brexit”. Dwindling spare capacity in the US has contributed to an increase in core inflation, which we think will prompt the Fed to raise rates at least twice by the end of the year. But the euro-zone and Japan are still struggling to shake off the threat of deflation. Among EMs, ongoing policy stimulus should continue to boost growth in China, which in turn will underpin the recovery in commodity prices, but the recessions in Russia and, particularly, Brazil still have further to run.
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