The evolution of economic indicators shows that growth remains strong at the global level. But the contrasts between regions are very present. In this environment, one economy is suffering more particularly. It is China. “China is in an impasse. And although growth in this country has remained strong at a level of 3-4%, deflationary pressures have not disappeared. This country faces low consumer confidence. households no longer spend and save a lot. It is the only economy where prices are falling., notes Anton Brender, Chief Economist at Candriam. We should expect a slowdown in growth in this country in the second half of the year. With negotiations looming regarding customs duties on goods imported from China, the only way out today for this country is structural support for domestic consumption.
In the United States, the Federal Reserve (Fed) remains cautious despite domestic demand that has grown at a sustained pace since 2023. “But what is driving growth is essentially public spending. The Inflation Reduction Act (IRA) has been a temporary driver for the economy and has encouraged investment in industry. We also see that research and development spending is very high in the United States, which is an undeniable support for growth.”, recognizes this economist. Strong immigration has allowed the job market to grow while, at the same time, the unemployment rate has increased. There is no risk of recession in this country. “But this economy must decelerate”recommends Anton Brender. The unemployment rate remains low but we are not seeing productivity gains. The Fed is therefore keeping the brakes on and we can probably expect two interest rate cuts by the end of the year. Given the elections, we can expect strong volatility on the markets across the Atlantic at the end of the year.
Donald Trump or Joe Biden? “For the markets, there is no good or bad candidate”
The case of Europe
And Europe in all this? “We are still in a lower situation than before the Covid crisis. It is especially the situation in Germany that has been abnormal. But the economy of this country recovered in the first quarter. Due to the weakness of demand, companies are investing less. The engine of European growth will be the increase in consumption.”says Florence Pisani, Global Head of Economic Research at Candriam. The situation is different compared to the United States. Europe pays more for its energy, it has less budgetary support and its labor market is tight. “Most of the growth gap between the United States and Europe lies in productivity gains which are too low in Europe. Furthermore, we are witnessing underinvestment in research and development in Europe”, recognizes Florence Pisani. However, a modest acceleration in activity appears to be underway. But the growth gap between the euro zone and the United States is likely to persist. Overall, the world economy is not doing so badly despite the various geopolitical tensions we are experiencing.
