Global Economic Weekly: AI, Iran War and K-Shaped Economy

The report examines the interplay between the AI boom, the Iran conflict, and K-shaped US economic dynamics, cautioning that these forces are heavily dependent on persistent global liquidity. It also provides regional updates on the US, Euro area, UK, China, and Emerging markets, emphasizing divergent economic recoveries.

Key Takeaways

• 1.AI boom and K-shaped consumption dynamics are reinforced by excess global liquidity; any shock that tightens liquidity is a major threat.
• 2.US economy faces a supply shock similar to 2022, but with better inventories, cooler goods demand, and a more balanced labor market.
• 3.ECB is expected to deliver a 25bp hike, with forecasts suggesting a short hiking cycle.

Table of Contents

• Global Letter: AI, Iran war and K-shaped economy: are they connected?
• US: Supply is similar, demand is different
• Euro area: ECB preview – starting a short hiking cycle
• UK: Bit by bit
• China: Recent import surge hardly a sign of rebalancing
• Emerging EMEA: S.Africa – Necessity of Fiscal Anchors
• Latin America: Mexico – Stability holds, growth lags