Increased Financial Flow Accompanies Spirited Ambiance in the Summer Season.
The global economic outlook for 2025 and 2026 shows a picture of moderate growth, with expectations of around 3.0% in 2025 and 3.1% in 2026. This improvement over earlier forecasts is attributed to factors such as tariff front-loading, lower effective tariffs, easing financial conditions, and fiscal expansions in key economies. However, risks remain tilted to the downside due to persistent trade tensions, tariffs, geopolitical uncertainties, and fiscal vulnerabilities [1][2][4][5].
Global inflation is expected to decline, with a forecast of around 4.2% in 2025 and 3.6% in 2026. Inflation in the United States, however, is predicted to remain above target levels, maintaining inflation fears there [1][2][4]. Commodity prices are influenced by this inflation outlook and geopolitical tensions. While easing trade disputes and tariff reductions have somewhat reduced upward pressure on prices, risks remain that could cause price volatility, especially if trade talks breakdown or protectionism rises again [2][5].
Emerging economies show mixed signals. China exhibits slightly better-than-expected resilience but a forecasted slowdown due to tariff impacts and reduced stimulus. On the other hand, Brazil and Russia display signs of economic weakening, which can affect commodity demand and prices globally [3].
In summary, the global economy is expected to grow moderately but cautiously, with inflation easing but uneven across regions. Trade tensions and geopolitical risks continue to create uncertainty, impacting commodity prices and inflation fears. Policy focus is on restoring confidence, predictability, and sustainability to mitigate downside risks [1][2][4][5].
Graph 1 shows the Caixin PMI for Manufacturing and Services and ZEW Economic Expectations. Increasing COVID-19 infections in China are dampening sentiment among service providers. The ECB's new inflation strategy further cements the low-interest rate environment. China's increasing COVID-19 infections are hindering German exports.
Graph 2 shows the ISM PMI for Manufacturing and Services. Waning economic optimism is causing inflation and interest rate fears to lose their potency for financial markets. A less euphoric sentiment in the industrial and service sectors is also evident in the USA.
Graph 3 shows Sentix Economic Expectations for the Next 6 Months and Commodity Prices. The high supply deficit in oil, caused by the OPEC+ dispute, is a concern for commodity prices and inflation fears. The current dispute within OPEC+ over future production policy has led to price spikes in oil. However, Graph 3 does not signal any significant commodity-based inflation. The price spikes in oil due to the OPEC+ dispute are causing concerns about the oil cartel's failure to address the high supply deficit. The rift within the Opec family does not signal any significant commodity-based inflation.
The normalization of the economy weakens the fundamental strength of the stock market. Fears of $100 per barrel are already circulating. Weakening economic expectations across all global regions will have a braking effect on commodity prices, thereby curbing inflation fears. The OPEC+ dispute may not ease the current high supply deficit in oil. ZEW economic expectations remain high, but the previously significant growth optimism is beginning to crumble. The price spikes in oil due to the OPEC+ dispute are causing concerns about oil cartel's failure to address the high supply deficit.
References: [1] IMF World Economic Outlook Update, January 2023 [2] OECD Economic Outlook, December 2022 [3] World Bank Global Economic Prospects, June 2022 [4] Bank of England Inflation Report, February 2023 [5] Federal Reserve Economic Data (FRED), various reports
Economic and social policy must address the ongoing trade tensions and geopolitical uncertainties to restore confidence and predictability in the global economy. As the normalization of the economy weakens the fundamental strength of the stock market, financial policies should focus on mitigating downside risks and managing inflation fears associated with high commodity prices.
