In the spring, the German economy was just on the verge of recession. Since then, according to various business climate surveys, it has made… a step forward. A contraction of activity seems unavoidable. Its duration and extent will depend on the developments of the energy crisis.
Economic policy is about stabilising inflation around a low target, generally set at 2%, and steering activity growth as close as possible to its potential. Both objectives are equally desirable for the smooth running of business.
"Equities remain one of the most attractive asset classes over the long term and equity markets have already fallen sharply. Yet, as supply shocks typically last longer than demand shocks, we are still waiting to buy."
After a cataclysmic first half of the year, and with the economic outlook in developed countries deteriorating, prudence would prompt a withdrawal from risky assets in anticipation of a lull. But is caution always a good advice?
Business climate indicators in the eurozone weakened significantly in June. In the manufacturing sector, this is due to the persistent constraints on production, with no hope of an easing in the foreseeable future given the war in Ukraine and the related energy crisis.
China holds a unique position in the global economy, accounting for 18% of global GDP in 2021 but also subject to tight central control. The government's efforts to balance growth with ideology have already made an eventful 2021, including a broad regulatory crackdown on tech giants, ongoing tensions with the US and a potential real estate bubble.
"Brace yourselves for an economic hurricane," warns Jamie Dimon, CEO of JP Morgan.
Whether it will be a storm or a full-blown hurricane with severe devastation is, of course, not a foregone conclusion.