While recent economic data across the board suggest that growth was strong in Q2, leading indicators (business climate, household confidence) were more mixed in June, pointing to a more difficult Q3.
This is particularly the case in the US, where even the ISM non-manufacturing index deteriorated sharply in June, while in Japan and the UK, growth should return to a more normal level after a very favourable Q2 (and benefiting from rebound effects in Japan, after a more difficult Q1).
In the euro zone, the two principal countries (Germany and France) continue to suffer from the cautious attitude of households, whose confidence is struggling to return to its pre-inflation shock level, despite a fairly marked decline in inflation. In Germany, the persistent weakness of industry is also weighing on the economy, while in France, rising political uncertainty is likely to dampen investment prospects.
Inflation has eased sufficiently (with the labour market under less pressure) for us to anticipate that the Bank of England and the Federal Reserve will join the ECB in cutting interest rates in August and September respectively. On the other hand, the Bank of Japan is expected to continue its monetary normalisation (which involves rate hikes) in September.
Article completed on 17 July 2024
