The tug-of-war between positive economic fundamentals and the protectionist policies that threaten to undermine them has dominated the macroeconomic story so far this year. Regrettably, this narrative is likely to continue unabated for the remainder of the year. Following the synchronised upswing of 2017, the global economy stuttered at the beginning of the year. Global growth lost momentum in the first quarter, in part reflecting special factors such as the impact from adverse weather conditions.
In recent months, economic growth has rebounded to levels that prevailed last year, when global growth came in at 3.7% (see Chart 1). What’s more, global growth has become less synchronised: the US economy has continued to accelerate, while economic growth has slowed in the rest of the world. This creates a fragile backdrop, in which trade tensions – that are likely to continue to brew in the run-up to the November US mid-term elections – could become a catalyst for a sharp and broad-based slowdown.