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July 30, 2018

Global Economy: Braving protectionist headwinds

  • The real-time gross domestic product (GDP) tracker of the Atlanta Federal Reserve has signaled stronger-than-expected economic activity in the United States, and projected 4.8% growth for Q2
  • In its June meeting, the European Central Bank (ECB) announced tapering of its asset purchase program with the last round to be undertaken from October to December
  • China's trade surplus narrowed, as imports growth outpaced exports, posing a downside risk to growth
  • Brent crude prices cooled on-month after the decision to increase output from July, averaging $74.4 per barrel

The escalation of trade tensions between the US and its major trading partners is running synchronous with the global financial tightening triggered by the unwinding of accommodative monetary policy by the central banks of some major advanced economies. These could have broader ramifications and sow the seeds of a noteworthy global growth slowdown. Even as the global trade is battered by protectionist sentiment and tariff wars, short-term indicators are signaling a revival in Q2 after growth slowed in Q1 in most advanced economies. Central banks of key advanced economies signaled the end of their accommodative monetary policy in the near future. While the US Fed raised its federal funds rate in June, the ECB announced tapering of its asset purchase program. Contrarily, the Bank of Japan is continuing with its monetary policy easing.