Major economies struggling for different reasons

The latest data have revealed that the world’s major economies are all struggling, but for different reasons. In Europe, the energy crisis is largely behind the recent softness in consumer and industrial activity. In the US, higher interest rates are weighing on interest-sensitive areas of activity such as housing, auto sales and equipment investment, as our new interest-sensitive spending indicators show. Meanwhile, China is currently contending with a virus wave as widespread as the previous Omicron outbreak, against a backdrop of a property sector slump and a weakening export climate. High inflation will preclude monetary policy support in advanced economies in the coming quarters, while traditional concerns about debt and the renminbi should see the PBOC stay largely on the side-lines. Add all this together and global GDP – having contracted for the first time since early 2020 in Q2 – looks set to grow by little more than 2% this year, which on some definitions constitutes a ‘global recession’.