Headwinds in the third quarter

In the third quarter, we believe the global economy will face three risk factors: economic slowdown, with inflation and interest rates remaining high; risks from tighter financial liquidity; and slower economic growth in China and emerging markets.

In the United States, the Conference Board leading economic indicators have fallen for a 13th consecutive month, while retail sales are slowing. Private investment, measured by orders for durable goods, has also slowed sharply. Consumer price inflation, at 4.0% in May, is down from 9.1% in June 2022 but still relatively high, pressuring the Federal Reserve to signal more interest-rate increases.

Further tightening bias, coupled with tightening US fiscal policy, could further squeeze liquidity. The banking crisis in March caused regional banks to tighten lending, slowing credit growth while deposits have also contracted…