Recent data suggest that global economic activity was even weaker than we initially thought in Q2, with GDP probably contracting in several major economies including the euro-zone, UK and China. The earliest signs for Q3 are not good, with business expectations and consumer confidence falling further in the latest surveys. The consolation is that weaker demand seems to be opening up spare capacity and our G7 Shortages Indicators point to some improvement in product shortages. Meanwhile, survey measures of input and output prices have generally fallen from high levels. But labour shortages remain acute, and with core inflation rates still high and rising in most major economies, central banks will remain in hawkish mode for some time yet.
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