Summary

  • Persistence and Patience

Despite rising uncertainties, the global economy has been resilient. Escalating trade tensions, coupled with tightening liquidity conditions, have not yet had a notable impact on global growth. However, protectionism, a stronger U.S. dollar and increasing risks of a hard Brexit are casting doubt over an otherwise thriving global economy.

Developing risks have put the focus back on emerging markets (EMs) and their domestic weaknesses. The majority, if not all, of the EM currencies have suffered over the last couple of months. For them, the focus is likely to be on getting their houses in order to limit further damage from an uncertain external environment.

Our baseline expectation is that strains on both the trade and political fronts will be defused, but the risks continue to remain tilted to the downside.

The following is an overview of our expectations for key markets.

United States

  • The initial estimate of real U.S. gross domestic product (GDP) in the second quarter was a strong 4.1% (annualized), led by net exports. The prospect of imminent trade actions may have led to front-loading of purchases before any tariffs were enforced.
  • In the second half of the year, the persistent impacts of tax reform position the U.S. for continued growth. However, we expect the expansion to downshift to a more sustainable rate in 2019, as temporary incentives from tax reform expire and the costs of trade actions become more apparent.