Global Economic Roundup

We have officially hit the mid-month economic data bonanza, and we see several interesting nuggets. Altogether, we find that whilst US tariffs and trade uncertainty may be creating choppy waters, the world’s main economic engines keep powering ahead. Global growth isn’t gangbusters, in our view, but goods demand in the US and China shows resilience. Meanwhile, Japanese gross domestic product (GDP) rose more than expected in Q2.^[i] We think these indicators, in concert, underscore how business activity globally is proving better than anticipated—and why stocks are riding high this year.^[ii]

US Expands Despite Headwinds

America’s retail sales advanced broadly in July, up 0.5% m/m following upwardly revised 0.9% growth in June.^[iii] Exhibit 1 shows shopping hit record highs. Under the bonnet, 9 of retail sales’ 13 subcategories rose, led by car buying (1.7% m/m, inching up from June’s 1.6%) and furniture sales’ 1.4%.^[iv] Excluding autos and petrol, sales rose 0.2% m/m after an upwardly revised 0.8% in June.^[v]

Exhibit 1: Though Pace Mixed, US Monthly Output Data Trending Higher

Source: FactSet, as of 21/8/2025. Note: Retail sales are in value or nominal terms (not adjusted for inflation) whilst industrial production is in volume or real terms (adjusted for inflation), which partly explains the sharp divergence. Inflation is rising prices economywide.

Of course, many commentators we follow noted a big caveat: Much of this could be tariff frontrunning. July was the last month before America’s Liberation Day tariffs commenced, and industry reports indicate automakers are building tariffs’ costs into model year 2026 pricing.^[vi] But with economists we follow widely suspecting some sales giveback as tariffs take effect and stockpiled pre-tariff inventory runs out, it wouldn’t be surprising.

The usual caveats also apply: American retail sales aren’t inflation-adjusted and don’t reflect most services expenditures, which generate 66.0% of total US consumer spending.^[vii] Whether actual unit sales volumes match new highs in dollar value sold remains to be seen. America’s Personal Consumption Expenditures will provide a fuller picture on this and services’ contribution at August’s end. But retail demand continues to be better than projected so far and shows tariffs have yet to stymie stores’ sales.

Data were a little less rosy on the industrial production side, as it dipped -0.1% m/m in July.^[viii] (Exhibit 1) But we find monthly chop is normal and the slightest of dips after June’s record high isn’t anything alarming to us. The dip also stemmed mainly from mining and utilities.^[ix] Manufacturing, industrial production’s largest component, was flat in July and still at its highest level since 2022’s post-COVID lockdown reopening recovery.^[x]

Notice, too, the overall trend—broadly flat since 2022. Whilst not great, it is holding up better than most analysts we read deemed likely a few months ago, when warnings of tariffs causing huge component shortages ruled. Moreover, industrial production is just 16.2% of US GDP, and flat, choppy growth there isn’t new, either.^[xi] It isn’t the swing factor many commentators we follow make it out to be, much less make or break for the economy generally.

China Chugs Along

Retail sales also rose in China, up 3.7% y/y in July—adjusted for inflation.^[xii] (Exhibit 2) However, this missed consensus estimates and slowed from June’s 4.8% y/y, which reports dubbed a “growth slump.”^[xiii] (Notably, they fell -0.1% m/m, their second monthly contraction after June’s -0.3% dip, but China doesn’t seasonally adjust these data, which we think makes year-over-year comparisons more accurate for depicting real sales’ underlying trend.)^[xiv] Combined with Chinese industrial production growth cooling to 5.7% y/y from June’s 6.8%—and missing forecasts—the popular narrative we observe suggests more government support is needed to bolster its economy against trade headwinds and a protracted property plunge.^[xv]

Exhibit 2: Slow but Steady Chinese Output Growth

Source: FactSet, as of 21/8/2025. Note: China adjusts these series for inflation.

Setting aside questions over the need for and efficacy of such stimulus, the government has indeed announced a variety of measures recently. The latest include targeted loan subsidies to boost household consumption and business services.^[xvi] These are in addition to programmes announced this year for child (up to age three) and elder care subsidies, gradual implementation of free universal preschool (ages three to six) education, increased retiree pension benefits and expanding a consumer goods trade-in scheme (for household appliances, electronics and equipment).^[xvii]

Overall, though, growth seems to be persisting regardless to us, which is way better than many reports we read projected earlier this year. We think that relief has helped drive the MSCI China Index up 19.4% year to date in pounds, to levels unseen since 2021—a fillip for sentiment toward Emerging Markets and global stocks.^[xviii] Furthermore, at 16.9% of global GDP (versus the US’s 26.8%), one of the world’s main economic engines continues contributing to aggregate growth.^[xix] The long-awaited scenario of a hard landing in China hitting global growth remains at bay, in our view.

Japan’s Trajectory Stronger Than Appreciated

Japan’s Q2 GDP expanded 1.0% annualised (0.3% q/q), more than doubling estimates for 0.4% annualised (0.1% q/q) growth.^[xx] Headlines we read saw this advance weathering the tariff storm as alarm over 25% duties gave way to relief when the US-Japan trade deal concluded with only a 15% levy, though warnings keep swirling over that still substantial hike.

Exhibit 3 also shows GDP looks better below the surface, with only government spending and inventories detracting last quarter—and tariff frontrunning not the sole contributor. Private sector domestic demand components all rose: Household expenditures gained 0.5% annualised, residential investment 3.2% and business investment 5.5%, accelerating from Q1’s 3.9%.^[xxi]

Exhibit 3: Japanese GDP and Its Contributing Components

Source: FactSet, as of 21/8/2025. Japan real GDP and components, Q1 2024 – Q2 2025.

Japan benefitted from external demand, too, with exports swelling 8.4% annualised.^[xxii] Again, some of that is likely frontrunning, in our view. But we think it is a well-known phenomenon at this point, whereas few financial publications we follow note the surge in capital expenditures taking place under the radar. For those who have been tracking the pickup in Japanese loan growth, though—and what we see as increasingly favourable monetary conditions helping support it—we find strengthening business investment unsurprising. That and Japanese stocks’ climb to record highs (using its sensibly market-capitalisation-weighted TOPIX benchmark versus the price-weighted Nikkei), finally surpassing in the last month their early-1990 peak.^[xxiii] They also got past the high before summer 2024’s market volatility when the yen strengthened, breaking out of a yearlong flat stretch.^[xxiv]

Now, July and Q2 data are old news for stocks, in our view. So, looking ahead, could tariffs and associated uncertainty still bite? Possibly, but we think the latest data on summer activity show the world’s biggest economies exceeding dour springtime outlooks. With sentiment still stung by tariff prospects, we see further room for reality to beat prevailing pessimism—and stocks to run.