We see clear signs that the global business cycle has peaked in early 2018 in line with our expectations outlined in Five Macro Themes for 2018 , 3 January 2018.
Our MacroScope models point to a further deceleration over the coming quarters. The recent uncertainty over a potential trade war is likely to reinforce this picture.
Monetary tightening, higher yields, lower real wage growth, more uncertainty - and in the case of the euro area a stronger currency - are all factors pushing production growth a notch lower in the rest of 2018, in our view.
While the cycle is softening, we still expect growth levels to stay above potential growth in 2018 and 2019. US fiscal easing will temper any deceleration in 2019.
Nevertheless, declining PMI levels across regions tends to cause some anxiety about the strength of the recovery, giving less support to risk assets and putting a cap on bond yields. In a forthcoming piece, we will look at the financial implications of a decelerating business cycle.
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