Taking stock at the mid-point of the year, we are in a period that we would characterise as ‘the great normalisation’, with growth rebalancing, inflation moving lower and interest rates in decline. While global growth and financial market prospects look to be good, an uneasy calm is present as fragilities linger in the shadows. Get our take on whether this is sustainable, or if some chill winds are building.

The first half of the year saw a number of cross currents at play, yet we close the period with economic growth having been resilient, headline inflation plunging, a systemic banking crisis averted, and equity markets back in bull-market territory.

As we hit the midpoint of the year, the tempered optimism for the global economy that we had six months ago has been undermined by war in Europe and mass Covid-related lockdowns in China.

The global recovery has been remarkable on many levels, not least in terms of the power of science and the resilience of societies. Mass vaccination and highly supportive fiscal and monetary policy has catapulted economic activity to a level few thought possible at the start of the year.

A global pandemic and self-imposed lockdowns lead to the sharpest contraction in global growth since the Great Depression. Yet a truly profound policy response has prevented a health and economic crisis becoming a financial crisis. However, the recovery will still leave a large hole in global output and a greater dependency on support mechanisms.

Slowing global growth encounters a new round of monetary stimulus. Most financial assets soared in the first half of the year as investors priced in an era of renewed monetary stimulus against a backdrop of benign inflation.

Economic conditions are robust and growth is expected to remain above trend, while financial markets are in good shape, with upside for equities. The global landscape has become more fragile, however, as shifting sands are evident. From increasing populism and mounting trade tensions, to the spread of financial tightening, risks have risen.

A broad-based and deepening global economic expansion is panning out largely as we had thought. Inflation, however, has been weaker than expected, and with underlying vulnerabilities still evident inmost regions, the current cyclical upswing needs to be a catalyst for change rather than a time for relaxation.