It’s hard to imagine a more significant week for economic news and trade policy developments. These moves will shape markets and policy choices around the globe in the years to come! Similarly, the United Kingdom’s GDP has now been negative for two months in a row, igniting fears of a major recession. Meanwhile, the Bank of Canada has decided to maintain its overnight rate at 2.75%, signaling a cautious approach amid fluctuating economic conditions.
President Trump’s tariff deadline has come and gone in the United States. As a result, new tariffs are now in effect, hitting economies including New Zealand and Australia hard. In Japan, political uncertainty increases, potentially changing the trajectory of economic policymaking. This week is heavy with important economic indicators. These IHS Markit / ISM non-manufacturing PMI for July and Canada’s jobs report will both provide more insight into the health of their economies.
UK GDP Performance Raises Concerns
UK GDP Growth Rate fell for the second month in a row in May. This seemingly unstoppable decline has sent shockwaves through the economist and policy makers community. This ongoing contraction indicates potential challenges for the UK economy as it navigates post-Brexit realities and the impacts of global economic shifts. It’s critical that we focus on the underlying causes, many of which are driving this troubling downturn.
Experts suggest that this negative trend in GDP could lead to calls for more aggressive fiscal and monetary policies from the Bank of England. Falling inflationary pressures consumer spending has been battered by rising inflation—especially for food and energy costs. Consequently, the Fed finds itself walking a fine line between jumpstarting growth and ensuring price stability. Business expansion is flagging, and consumer confidence is crumbling. The government needs to start working on recovery strategies right now to revitalize economic activity.
Domestic troubles are not the only thing we need to fear. The other key factor influencing the UK’s economic outlook is international trade relations and geopolitical tensions. As new economic reports and data releases are announced, all stakeholders will be watching to see how these potentially historic developments play out in the coming weeks.
Global Trade Tensions Intensify
On this side of the pond, the Bank of Canada kept its overnight rate at 2.75% today. This decision is a smart and prudent one given the unclear global picture. The ruling arrives as Canada negotiates through a storm of uncertainties around trade, NAFTA and related issues with its southern neighbor the United States. Both countries are currently negotiating trade agreements. At the same time, market participants are on the lookout for any substantive shifts that might come as a product of these negotiations.
Further on the trade front, story of the week last week was President Trump deciding to impose new tariffs right as his deadline expired. New Zealand’s exporters to the U.S. now confront a hefty 15% tariff on their exports. In the meantime, Australia is facing a 10% tariff on its exports. Although these tariffs are meant to be temporary, they could have lasting impacts on bilateral trade partnerships and will likely result in retaliatory actions from affected countries. As analysts have cautioned, these tariff increases risk upending supply chains and driving up consumer costs.
Second, trade tensions are mounting. This week, China will announce its July trade figures, which should provide some important clues about import growth rates and the pace of overall trade rejuvenation. The ongoing situation highlights the interconnectedness of global economies and the need for strategic policy responses to mitigate risks associated with protectionist measures.
Key Economic Indicators on the Horizon
In particular, we will get a look at three very important economic indicators next week. These updates will provide important context for an unprecedentedly diverse set of national economies. In the United States, the non-manufacturing PMI figure from ISM in July will be important. It will provide a clear indication of how the service sector is doing. This metric has become a headline metric in many ways, seen as a bellwether for economic momentum, and can greatly affect market sentiment.
Additionally, June’s factory orders will be released next week, offering insights into manufacturing activity—a crucial component of the U.S. economy. Today’s advance rate of U.S. GDP for Q2 shows the economy growing much quicker than anticipated. Analysts are already looking forward to whether or not this trend of growth will persist in future months.
Closer to home, Canada will release employment data for July on Friday. Whether or not this report has the desired effect, it will be especially powerful in shaping the Bank of Canada’s future monetary policy decisions. Japan’s household spending data for June should be out by the end of the week. Further, the current account balance will be released as well. The summary of opinions from the BoJ’s July meeting will be available shortly. Such a summary would demonstrate the BoJ’s appreciation of economic realities in these politically ambiguous times.