The latest data have shown some improvement in global activity with the US holding up well, the euro-zone exceeding weak expectations and China starting to respond to policy support. However, forward-looking indicators point to a renewed slowdown in world industrial production and trade to come. And while consumer spending is benefitting from lower inflation, softening labour markets and political uncertainty are key headwinds. Below-trend global GDP growth and falling inflation will allow most central banks to cut interest rates further in the coming months. But policy loosening cycles in some Emerging Markets will be cut short by sticky inflation. Meanwhile, the inflationary implications of President-elect Trump’s mooted policies have led us to revise up our forecast for the Fed funds rate next year by 50bps.
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