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June 29, 2018

Global Economy: Growth-inflation mix worsens in advanced economies

  • The United States (US) Fed hiked rates by 25 basis points (bps) to 1.75–2% in its June meeting
  • Trade surplus in China continued to narrow in May, printing below the market expectations at $24.92 billion from $40.51 billion a year ago, as imports surged 26% onyear
  • Rising tension in the Middle East after the US scrapped the nuclear deal and renewed sanctions on Iran, sent the Brent crude oil price shooting past $80 per barrel (bbl) in May - the highest since November 2014

The global growth engine has been revving up for some time and the much-touted synchronous recovery has entered the lexicon of mainstream media. However, rising geopolitical uncertainties in the Eurozone and the US-China trade war have raised red flags. Real gross domestic product (GDP) growth has moderated across most advanced economies in the first quarter (Q1) of 2018. However, China’s robust performance continued in Q1, with the Purchasing Manager’s Index (PMI) data indicating continued strong growth momentum in Q2 as well. Separately, rising crude oil prices over the past three months have been exerting inflationary pressure, worsening the growth-inflation mix in most advanced economies.