While resilient, global economic growth is uneven, forward-looking indicators now show a divergence between manufacturing and services on a global basis. The manufacturing sector has contracted for the first time in 2024, registering 49.7 in July on the global Purchasing Managers’ Index (PMI), while services continue to grow steadily, clocking in at 53.3 (Exhibit 1).
In the advanced markets, the US saw real GDP increase at an annual rate of 3.0% in the second quarter of 2024, according to the “second” estimate (released August 29) of the Bureau of Economic Analysis (BEA)—up from a first-quarter rise of 1.4%. The second-quarter advance primarily reflected increases in consumer spending, private-inventory investment, and business investment. The eurozone saw second-quarter GDP growth increase by 0.3% quarter on quarter and 0.6% year on year. July’s International Monetary Fund (IMF) projections point to a modest pickup of 0.9% for 2024 (an upward revision of 0.1 percentage points), driven by stronger momentum in services and higher-than-expected net exports in the first half of the year; growth is projected to rise to 1.5% in 2025. In the UK, quarterly real GDP is estimated to have grown 0.6% in the second quarter of 2024, following first-quarter growth of 0.7%. Versus the same quarter of the previous year, GDP is estimated to have risen 0.9% in the second quarter of 2024.
Among the emerging markets, China remains in the fast lane, but the pace of expansion may be slowing. China’s industrial output was mostly stable in July, recording year-on-year growth of 5.1%—a slight decrease from June’s 5.3%. By sector, manufacturing output grew by 5.3%, a slight decline from 5.5% in June; utility output expanded by 4.0%, down from 4.8% in June; and mining output rose by 4.6%, a marginal increase from 4.4% in June.
Markets have been hanging on a Fed decision on whether to cut interest rates in September—and by how much (the Fed cut rates by half a percentage point (0.5) on September 18). Only one central bank among surveyed economies cut rates in August (though the Bank of England reduced its policy rate to 5% on the last day of July): the Central Bank of Russia raised its key rate by 200 basis points to 18%, amid the country’s economic landscape of accelerating consumer prices. That said, central banks across the globe have either cut rates or are leaning toward doing so (Exhibit 2).
The Fed cut rates by a half percentage point in September amid a less optimistic tone in the US labor market. Market commentators have been vocal about the Bureau of Labor Statistics’ (BLS) downward revision of some 818,000 jobs added to the US economy between April 2023 and March 2024. This represents the biggest BLS overestimation of the past 15 years. Downward revisions by the BLS are routine; however, the biggest resets have historically happened prior to significant economic downturns.
Overall consumer confidence has largely declined, as high consumer prices continue to affect customers (though the UK is still trending up). That said, in the US, July’s consumer confidence index (Conference Board) rose to 100.3, up from a downwardly revised 97.8 in June. Similarly, consumer confidence in Mexico remained above the neutral 100-point mark to sit at 101.2 for a second consecutive month. Meanwhile, consumer spending continues to decelerate in most regions apart from Brazil. Nevertheless, the US saw July retail and food-services sales (adjusted for seasonal variation and holiday and trading-day differences) rise to $709.7 billion—a 1.0% increase from the previous month.
Central banks continue to anchor inflation expectations at around 2.0 to 2.3%. The broad picture on prices shows inflation continuing to ease among developed economies—but with deflation still present among producers in the eurozone. Consumer inflation in developing economies remained stable in July but is accelerating in Russia, where monetary policy is seeking to control prices in the face of fiscal stimulus.
In the US, the consumer price index (CPI) rose 2.9% for the 12 months ending July, the smallest 12-month increase since March 2021; core inflation rose 3.2% (annualized) in July. Eurozone headline inflation was slightly up in July, to 2.6%, while core inflation stood at 2.9%; services inflation was 4.0%. The UK CPI lifted slightly from the Bank of England’s 2.0% target in July 2024, rising to 2.2%, from 2.0% in June. Core inflation (which excludes energy, food, alcohol, and tobacco) fell to 3.3%.
Consumer price inflation in China remained low at 0.5% in July (0.2% in June); deflation in producer prices was unchanged at a rate of −0.8%. Inflation in India unexpectedly dropped from 5.1% in June to 3.56% in July, primarily due to the base effect.1 The food and fuel categories were most affected, with steep declines observed. Brazil’s inflation rate climbed to 4.50% in July (from 4.23% in June 2024), registering its third consecutive rise and further moving away from the 3.0% target set by the Banco Central do Brasil. As demand continues to exceed supply, along with rate rises for municipal services, inflation in Russia has accelerated further, to 9.1% year on year. Meanwhile, inflation in Mexico increased from 4.98% in June to 5.60% in July, continuing an upward trend since February that has pushed the rate beyond the central bank’s target range of 2.0 to 4.0%.
Most commodity prices continued to decline in August, but they all remain significantly higher than prepandemic levels. Gold climbed to reach record highs in August, breaking through the $2,500 per-troy-ounce mark to appreciate some 20% so far this year. Demand is partly driven by markets’ anticipation of interest rate cuts, the desire of some central banks to be less dollar dependent, and the metal’s traditional safe-haven status in the face of geopolitical risks. Moreover, gold is increasingly in demand in various high-tech industries. Prices of other metals (such as aluminum, copper, nickel, and steel), however, have edged down slightly due to slower demand in global commodity markets. The sideways trend in the price of multiple energy commodities continued.
The various regional and country-level PMIs continue to show divergence between manufacturing and services. Growth in manufacturing appears to have stalled in China, the EU, and the US, while services remain a bright spot on the global economic map, with the main economies exhibiting growth in July.
Among the advanced economies, the US industrial production index dropped to 102.8 in July (from 103.9 in June 2024). August’s manufacturing PMI in the US also fell, to 48.0 (from 49.6 in July), while the services PMI indicated solid expansion but declined slightly to 55.2. The eurozone’s composite PMI expanded from 50.1 in July to 51.2 in August, driven by the services sector. The services PMI reached 53.3 (51.9 in July), while the manufacturing PMI leveled off to 45.7 in August, up slightly from 45.6 in July. The UK proved to be an exception in manufacturing: the seasonally adjusted S&P Manufacturing PMI rose to a two-year high of 52.1 in July, up from June’s 50.9 and above the neutral 50.0 mark in each of the last three months. The latest data showed a further expansion in business activity across the UK’s service sector, with the seasonally adjusted S&P UK Services PMI posting 52.5 in July, a slight increase from June’s 52.1.
Among the emerging economies, India’s PMIs for manufacturing and services both remain at historically high levels. Companies report that production, demand, and employment continue to increase, although some deceleration in demand due to a lower number of new orders is visible. Brazil’s manufacturing PMI rose to 54.0 in July (up from 52.5 in June), above the neutral 50.0 mark for the seventh month running, while the services PMI rose to 56.4 (from 54.8 in June).
In July, the unemployment rate in both the US and China continued to rise, while unemployment in Brazil has been trending down since April. The US unemployment rate rose to 4.3% in July, up from June’s 4.1% (3.5% in January 2020). Total nonfarm US payroll employment increased by 114,000 in July. In the three months to June, UK unemployment was estimated at 4.2%. Total unemployment in Mexico increased by 0.1 percentage points in June, to 2.74%. Over this period, employment in Mexico’s formal economy was down by some 30,000 employees.
Following July’s equities rebound, stock markets experienced a troubled August, with most exchanges registering losses—Brazil’s Bovespa the one exception. At the same time, market volatility trended slightly up in August but remains within controlled levels historically. The cost of capital continued to be stable in August, with inflation largely stable and markets waiting on interest rate decisions. World trade volumes increased by 0.7% in June, driven by growth across all trade flows in advanced economies. Global supply chain markets continued to normalize with the pressure index at the historical average value in July.
US exports in June reached $265.9 billion, $3.9 billion more than in May; imports registered $339.0 billion, $2.0 billion more than in May, increasing the monthly deficit by 2.5%, to $73.1 billion. China’s cross-border trade growth accelerated to 7.1% in July, up from 3.9% in June. Export growth remained robust at 7.0% (8.6% in June), while import growth saw a notable increase to +7.2% in July (from −2.4% in June), largely due to the low base effect from last year. India’s trade deficit worsened in July, reaching $9 billion. The main driver was trade in goods, especially exports, which declined for the third consecutive month, while imports remained broadly stable. Mexico’s June balance of trade figures indicated a deficit of around $1 billion, due to a widespread decline in exports, including consumer and intermediate goods, as well as petroleum and nonpetroleum exports.
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