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The global economy continues to be characterised by the divergence between a weak manufacturing sector and resilient services activities. This is the view of Guy Wagner, Chief Investment Officer at BLI - Banque de Luxembourg Investments, and his team, in their monthly analysis, "Highlights".

The gulf between the secondary and tertiary sectors has led to economic slowdown in most countries, without resulting in negative growth rates. For example, in the United States, real GDP grew at an annualised rate of 2.1% in the second quarter compared to the first three months of the year, which represents a deceleration against its previous increase of 3.1%. “The main contributors to growth were consumer spending and public expenditure, while exports and business investment had no impact,” explains Guy Wagner, Chief Investment Officer and Managing Director of the asset management company BLI - Banque de Luxembourg Investments.

Economic growth was much more moderate in the eurozone, Japan and China

In the eurozone, economic growth was much more moderate, with gross domestic product up 0.2% in the second quarter compared to the January to March period. In Japan, the government has just revised downwards its estimate for GDP growth in fiscal 2019 due to weak exports. In China, GDP grew 6.2% year-on-year in the second quarter, “its slowest increase since quarterly data were first published in 1992,” states the Luxembourgish economist.

ECB: new wave of stimulus measures in sight

As expected, the US Federal Open Market Committee (FOMC) cut interest rates by a quarter of a percentage point at its July meeting, dropping the target range to 2.00% to 2.25%. “This was the first interest rate cut since the 2008 financial crisis.” However, the Fed Chairman, Jerome Powell, made it clear that the interest rate reduction should be viewed as a mid-cycle adjustment rather than the beginning of a long series of rate cuts. In Europe, ECB President Mario Draghi hinted at a new round of monetary expansion measures in the near future. Specifically, he confirmed at the July meeting that interest rates would remain at current levels, or even lower, at least until mid-2020. A whole series of expansionary measures is likely to be announced at the next meeting in September.

MSCI All Country World Index Net Total Return reached a new all-time high

The MSCI All Country World Index Net Total Return expressed in euros reached a new all-time high in July, after gaining 2.6% over the month. “The flagship index for global equities benefited from the favourable performance of the US equity market,” concludes Guy Wagner.

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