Despite current geopolitical tensions, the global economy remains resilient. Economic growth in surveyed economies is accelerating, as growth in both the manufacturing and services sectors picked up in June. Manufacturing growth was largely stable (except in the eurozone, where it contracted faster) while services sectors remained bright, albeit expanding at a slower pace.
Growth in the second quarter was varied but remained positive across the globe (Exhibit 1). In the US, growth was strong at 2.8%, beating economists’ expectations of 2.0%. Gains were driven primarily by strong consumer spending, nonresidential investment, and a buildup of inventories, the latter two signs of corporate optimism. In the eurozone, GDP increased by 0.3% quarter on quarter and 0.6% year on year during the second quarter. Real GDP is estimated to have grown 0.9% in the three months to May 2024 (versus the three months to February 2024), attributable to 1.1% growth in services output.
Growth was faster in the emerging economies. Despite a deceleration, China’s second-quarter GDP growth was a healthy 4.7% year on year (down from 5.3% in the first quarter). Year-to-date GDP growth for the first half of the year stands at 5.0%. In India, industrial production accelerated in May, with growth rising from 5.0% in April to 5.9%, mainly driven by manufacturing and electricity production. In Russia’s wartime economy, growth in the total output indicator increased to 6.5% year over year from 5.5% in April. Industrial-production growth rose to 5.3% year over year in May from 3.9% in April.
Except for China, none of the central banks across surveyed economies lowered their key rates this month. In a surprising move, the People’s Bank of China cut interest rates on two occasions in July. It reduced the seven-day reverse repo rate to 1.7% from 1.8% on July 22, marking the first cut to the rate since August 2023. The one-year loan prime rate was lowered to 3.35% (from 3.45%), while the five-year loan prime rate (LPR), which serves as a benchmark for mortgage rates, was reduced to 3.85% (from 3.95%). Three days later, the central bank cut its interest rate for one-year loans to commercial banks to 2.3% (from 2.5%).
The moves were seen as a reaction to slowing growth in the world’s second-largest economy and turbulence in the real estate sector. China’s real estate market slowdown did show slight signs of easing in the second quarter. Demand-side indicators revealed a smaller reduction in sales revenue, together with a shallower decline in new-home floor space sold. On the supply side, the decline in floor space started was also less steep. However, foreign direct investment inflows into China decreased further, with a −33.2% year-on-year decline in the second quarter (from −26.1% in the previous quarter), according to data from the Ministry of Commerce.
Overall consumer confidence has declined as higher prices continue to affect everyday buying decisions, but spending is mixed across regions. In terms of retail-sales growth, all surveyed economies except Brazil have witnessed decelerating consumer spending. In the US, the June consumer confidence index (Conference Board) dipped to 100.4, down from 101.3 in May. Even so, June retail sales rose 2.3% over the previous year.
Central banks continue to anchor inflation expectations at about 2.0 to 2.3%. Inflation is still easing among developed economies, although the eurozone is experiencing producer price deflation (Exhibit 2). In the US, median inflation expectations at the one-year-ahead horizon declined slightly to 3.0% from 3.2%, according to the June 2024 Survey of Consumer Expectations by the Federal Reserve Bank of New York. Across the Atlantic in the eurozone, inflation looks set to stay above target well into next year. Despite inflation falling by more than 2.5 percentage points since September, domestic price pressures remain strong, with wages growth still elevated (5.1% in the first quarter of 2024) while profits are tilting down.
The US consumer price index (CPI) registered a 3.0% (annualized) rise in June, a smaller increase than the 3.3% rise for the 12 months ending in May. Core inflation rose 3.3% (annualized) in June. Meanwhile, headline inflation in the eurozone was slightly down at 2.5% in June while core inflation stood at 2.9%; services inflation was 4.1%. In June, the UK CPI stayed steady at the Bank of England’s 2% target (which it reached for the first time in three years during May). Core inflation in the UK also remained at 3.5%.
Consumer inflation was stable across surveyed emerging economies, with the exception of Russia, where it accelerated. India’s CPI ticked up from 4.8% in May to 5.1% in June, primarily because of rising food prices, which grew at their fastest pace since the start of the year. However, the increases have been broader, with core inflation also edging up, though at a slightly slower pace. In Russia, both headline and core inflation continued to rise. June saw consumer price growth jump to 8.6% (from 8.3% in May). Utility tariffs were hiked by 10% on average in July, further increasing inflationary pressures. Inflation in Brazil climbed to 4.23% in June (from 3.93% in May), registering a second consecutive monthly rise and moving further away from the 3.0% target set by the Banco Central do Brasil.
Commodity prices declined in July but remain significantly higher than prepandemic levels. Most metals prices edged down due to slower demand on global markets, although gold reached an all-time high in July, moving past $2,380 an ounce. Amid the global push for cleaner energy, lithium saw a 231% increase in demand over the five years to 2023. Meanwhile, energy prices continued to move sideways, while food prices remained broadly unchanged in June. However, despite a fall in what consumers pay for food in 2024, prices are still significantly higher than they were prepandemic.
Looking ahead, the various purchasing managers’ indexes (PMIs) show a familiar divergence between manufacturing and services. In the US, June’s manufacturing PMI was revised slightly lower to 51.6 from a preliminary reading of 51.7, while the services PMI rose to 55.3. In the eurozone, the composite PMI stood at 50.1 in July (50.9 in June), while the manufacturing PMI experienced a more pronounced decrease to 45.6, down from 45.8 in June. The services sector indicated softer expansion, with the PMI at 51.9 in July (52.8 in June). By contrast, the UK manufacturing sector continued to expand in June. The seasonally adjusted S&P Global UK Manufacturing PMI registered 50.9 in June, down slightly from May’s 22-month high of 51.2 and below the earlier flash estimate of 51.4. The PMI has posted above the neutral 50.0 mark (signaling expansion) for the past two months. The seasonally adjusted S&P Global UK Services PMI remained in expansion territory during June, posting 52.1. While this signaled an eighth consecutive monthly increase in output across the UK service sector, the headline index fell from 52.9 in May, signaling the softest rate of growth since November of last year.
Among the emerging economies, India saw the quarter finishing on a strong note, with the manufacturing PMI up from 57.5 in May to 58.3 in June. Growth in the services sector also accelerated, with demand for services continuing to rise, and expectations about hiring in the next three months reached the highest level in almost two years. Meanwhile, Brazil’s composite PMI rose slightly to 54.1 in June, from 54.0, staying firmly within the expansion zone for a ninth consecutive month. The manufacturing PMI rose to 52.5 in June (52.1 in May), indicating modest expansion. June saw Brazil’s services PMI decrease to 54.8. Despite the drop from 55.3 in May, this latest reading is indicative of a marked rate of expansion.
The US unemployment rate was virtually unchanged at 4.1% in June, up from May’s 4.0% (3.5% in January 2020), but it increased to 4.3% in July. Meanwhile, India’s unemployment rate surged to 9.2% in June (up from 7.0% in May), alongside a rise in the country’s labor participation rate. Other economies recorded a decline except China, which remained steady at 5.0%.
Overall, world trade volume recorded a marginal rise of 0.1% in May, with increases in all trade flows across emerging economies. At the same time, global supply chains are normalizing, with the pressure index reaching the historical average value in June. May’s Container Throughput Index climbed to 129.9 points, a notable increase from the previous month. This uptick was mirrored by a rise of some 3% in port trade activities versus April. China saw an increase in exports in May, while the eurozone experienced a decline; at the same time, China’s imports fell by 1%. China’s cross-border trade growth picked up to 3.3% in the second quarter, up from −0.5% in the first. Export growth accelerated to 4.4% in the second quarter (up from −1.7% in the first), while import growth stood at 1.7% in the second quarter, slightly up from 1.2% in the first quarter.
Continued strength in the US dollar has led to a 6.9% jump in US imports, the fastest quarterly rise since the first quarter of 2022. The US trade deficit remains a headwind, pulling GDP down by 0.7 percentage points. May’s exports reached $261.7 billion, $1.8 billion less than in April; May’s imports were reported at $336.7 billion, $1.2 billion less than April’s figure. The monthly trade deficit increased by 0.8%, to $75.1 billion. India’s trade deficit reached $8.4 billion as both export and import of goods contracted, but the latter at a slower pace. Trade in services, meanwhile, continues to record surpluses.
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