Don’t worry, yet...

Risks have become more balanced, however, and recent data suggests the weakness might arrive later. For the remainder of the year, a continued gradual slowdown across advanced economies seems most likely. Combined with easing inflation and the end of the central bank rate hiking cycles, this should be beneficial for advanced economy risk assets.

The slowdown has only just set in

For almost the entire first half of the year, the global economy has performed better than expected. This certainly goes for the aggregate advanced economies, where economic growth in fact accelerated instead of slowing down. Clearly, the cumulative effects of the fierce monetary policy tightening by most major central banks were still not (completely) felt by consumers and businesses. Especially the US economy continued to defy expectations, with household consumption and business investment both recording healthy gains in the second quarter. The UK and the eurozone economies also left behind the period of (near) stagnation in the second quarter by growing modestly, although eurozone consumption remained weak. Japanese economic growth even accelerated sharply in the second quarter, as the weakened yen led to surging net exports.

From June to August, however, global economic data started to come in slightly below consensus expectations for the first time in the year, because of unexpected weakness in the eurozone and China. Indeed, the closely followed surveys of supply chain managers (PMIs) suggest that eurozone and UK business activity is back in contractionary territory. China is experiencing a sharp slowdown, while US activity is approaching stagnation. Japan is the outlier, expanding solidly throughout the summer.