It’s not just the weather that’s been disappointing this summer. Economic news was not generally what most people had hoped for. While an upturn during the second half of 2024 was widely anticipated at the start of the year, it’s now clear this recovery will take some time. Europe looks likely to continue stagnating for the time being, China’s domestic economy has deteriorated again and the USA looks set for a considerable slowdown in growth, too.

But there is a glimmer of hope in the global economy: weakness in global demand for goods does seem to have bottomed out. Or at least that’s what improved growth rates in Chinese goods manufacturing and a significant rise in momentum in global goods trade are pointing to. In our view, this means countries with strong industrial sectors, such as China, Germany and Switzerland, may pick up momentum again over the coming quarters.

Otherwise, positive signs are few and far between. In Europe, the German economy appears to be stabilizing, but growth in France and Italy is slowing down. Overall, this means our neighbours are enjoying little momentum.

In China, the increasing deterioration in the real estate market and construction activity are a cause for concern. Real estate prices are now falling throughout China and investment in new-build developments remains extremely low. Construction activity has now decreased by two-thirds compared with 2019. This is also hitting consumer confidence, which is already being reflected in retail sales figures. Overall economic growth in the last quarter didn’t even reach 3 percent on an annualized basis.

Economic news from the USA was just as downbeat. Not only are consumer confidence and demand for construction faltering, but companies are also more sceptical about the months ahead. Purchasing managers at industrial and services companies currently expect a decline in their business activity. That’s something we’ve otherwise only seen shortly before or during a recession.

Whether the USA will actually enter recession is still unclear at the moment. And with inflation now lower after being tackled for a long period, it’s not unreasonable to expect the central banks to increasingly focus on maintaining growth and avoiding recession. This means a cut to interest rates in September looks increasingly likely in the USA.

What does that mean for the equity markets? Weaker growth leads to lower inflation. However, if growth is too weak, there is a risk of falling company profits and recession. We continue to expect a soft landing in the USA, but these factors clearly show why we’re still advising a cautious approach to investment.