The world economy has rebounded after a sluggish first quarter, with global growth rising to around 4% annualised in Q2. But we doubt that this will last long because it has largely resulted from a fiscal-stimulus-induced surge in the US economy. What’s more, world trade growth has slowed recently, at least in year-on-year terms, and the latest business surveys show export orders falling particularly sharply. It is unclear, however, whether this has resulted from increased protectionism, not least because the slowdown in global trade began before any new tariffs were imposed. Meanwhile, labour markets have continued to tighten, leaving little spare capacity in advanced economies, and inflation has picked up a bit. Against this backdrop, many central banks in both advanced and emerging economies are likely to continue tightening monetary policy.
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