The latest activity and survey data have provided even more evidence that the resilience in activity in advanced economies over the first half of 2023 is now fading. High interest rates are clearly weighing on credit growth, and a further rise in debt servicing costs in the coming months should contribute to a period of economic weakness in most DMs. Headline inflation is already falling sharply, and the combination of weaker activity and a gradual loosening in the labour market should exert downward pressure on core rates too. Accordingly, we doubt that the recent ‘higher for longer’ rhetoric from policymakers will last, and we expect central banks to start cutting rates next year. On the other hand, a step-up in policy support looks set to deliver a modest cyclical recovery in China, but the revival will not be strong or sustained.
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