J.P. Morgan believes resilient global consumption is still supporting expansion, but sticky core inflation limits room for policy easing

Overview

This J.P. Morgan Global Data Watch focuses on global growth, inflation, and policy paths in mid-2026. The core judgment is that the global expansion can withstand the energy shock, with consumption proving more resilient than expected, especially in the United States, Western Europe, and Japan; however, the decline in energy prices mainly improves headline inflation, while core inflation remains supported by services prices and pipeline supply-chain pressures. The report also emphasizes regional divergence: near-term momentum is improving in Western Europe, Japan faces risks from an unstable policy mix, China needs to find more sustainable domestic-demand support after a marked slowdown in 2Q, and emerging-market central bank paths are clearly diverging between EM Asia and CEE.

Core views

First, consumption resilience has been a key explanation for why global growth has remained expansionary over the past two years, with U.S. consumption, global retail tracking indicators, and PMIs still supporting moderate growth. Second, headline inflation is improving due to falling energy prices, but core inflation is around 3% and services inflation remains elevated, making it difficult for central banks to pivot quickly to easing. Third, the June Fed meeting minutes show a more hawkish policy inclination, and there are significant internal differences within the committee over the 2026-27 rate path. Fourth, hard data in Western Europe are stronger than survey data, Japan’s short-term growth is strong but its policy mix is unsustainable, and China’s growth is slowing and remains constrained by insufficient domestic demand. Fifth, EM Asia is leaning toward rate hikes under the influence of core inflation and Fed hawkishness, while CEE is seeing policy divergence due to disinflation and differing country targets.

Analysis framework

The report combines J.P. Morgan global economic forecasts, the GDP nowcaster, PMIs, retail sales tracking, text quantification of FOMC meeting minutes, central bank policy path tracking, and regional macro data to compare growth, inflation, policy rates, and the risk-asset environment across regions.

Methodology notes

• Macro ForecastingJ.P. Morgan Global GDP and CPI Forecasts

  Rolling forecasts and regional weighted aggregation

  The report uses J.P. Morgan Global Economics forecasts for GDP and CPI across the world, developed markets, emerging markets, and major economies, and generates regional and global aggregates using GDP weights.

• High-Frequency Economic TrackingGDP nowcaster

  Risk bias of nowcasts relative to official forecasts

  The report uses the nowcaster to estimate 2Q global GDP growth and compares data surprises and deviations of nowcasts versus forecasts across economies to assess upside or downside growth risks.

• Text AnalysisFOMC minutes quantifiers

  Analysis of policy-minutes wording intensity

  The report examines changes in the distribution of quantifiers such as all, many, and most in the FOMC meeting minutes to judge whether committee communication has downplayed internal disagreements and adopted wording closer to consensus.

• Policy TrackingGlobal Central Bank Watch

  Comparison of central bank policy rate paths

  The report tracks the policy direction of major developed- and emerging-market central banks, emphasizing hawkishness in EM Asia, policy divergence in CEE, and the impact of Fed hawkishness on the global rate environment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Global risk assets

  Growth resilience provides support, but inflation and policy rates limit valuation expansion

  Strengths

  Consumption and services PMIs are maintaining momentum, and data surprises in some regions are relatively strong.

  Weaknesses

  Core inflation remains sticky, and the Fed and some emerging-market central banks are hawkish.

  Comparison

  Compared with a pure recession scenario, the report is closer to a moderate expansion; compared with a loose-recovery scenario, policy constraints are stronger.

  Risks

  A renewed rise in energy prices, no decline in core inflation, and further central bank tightening.

• Fixed income

  Central bank divergence and sticky core inflation affect the yield curve

  Strengths

  Headline inflation is improving due to lower energy prices, helping ease some longer-term inflation concerns.

  Weaknesses

  The Fed minutes are hawkish, and EM Asia faces additional tightening pressure.

  Comparison

  Some CEE countries are more dovish, in contrast to the hiking cycle in EM Asia.

  Risks

  U.S. core CPI above expectations, upward revisions to the policy rate path, and fiscal risks lifting term premium.

• Foreign exchange

  Policy divergence and external imbalances affect major currencies and EM exchange rates

  Strengths

  Stable Chinese FX reserves and CNY resilience ease outflow pressure, while the Japanese government’s emphasis on respecting central bank independence helps communication stability.

  Weaknesses

  Japan’s policy mix conflicts with market stability, and EM Asia is under pressure from import prices and Fed hawkishness.

  Comparison

  Some CEE countries may move toward rate cuts as inflation falls, while Asia is tighter.

  Risks

  A renewed rise in U.S. rates, energy price shocks, and fiscal-political events.

• Commodities

  Energy prices are an important transmission channel for headline inflation and growth risks

  Strengths

  Lower oil prices can reduce headline inflation and provide a modest tailwind to 2H GDP.

  Weaknesses

  Military action in the Middle East, the pace of Strait of Hormuz reopening, and disruptions to Russian refined-product exports could still push product prices higher.

  Comparison

  Crude prices are below J.P. Morgan’s commodities team 2H26 Brent forecast of $83 per barrel, but risks in refined products may be greater than in crude.

  Risks

  Refinery capacity damage, tighter diesel and fuel oil supply, and a second-round energy shock.

• China-related assets

  Growth slowdown and weak domestic demand remain the core constraints, with policy signals as the key catalyst

  Strengths

  Exports are supporting a rebound in industrial production, and faster issuance of special local government bonds is providing limited policy support.

  Weaknesses

  Retail growth is weak, property and other investment remain sluggish, and insufficient domestic absorption is creating deflationary pressure.

  Comparison

  Compared with external financing constraints, the report places greater emphasis on weak domestic demand as China’s current constraint.

  Risks

  2Q GDP and June data missing expectations, insufficient policy support, and weaker external demand.

Key data

• 2Q global real GDP forecast2.3% saarThe report says the 2Q global real GDP forecast was lowered this week to 2.3% saar.
• 2Q global GDP nowcaster2.4% saarThe nowcaster estimate was unchanged and is broadly consistent with the 2Q forecast.
• 3Q26 global core CPI forecast2.9% saarThe report says the 3Q26 core CPI forecast was lowered this week to 2.9% saar.
• Global composite PMI52.0The June global composite PMI is consistent with above-trend GDP growth of about 2.7% saar.
• Global retail sales tracking2.7% saarThe three-month global real retail sales tracking through May points to acceleration.
• U.S. 2Q26 consumption forecast2.0% saarRaised due to better-than-expected U.S. spending data.
• U.S. June core CPI forecast0.22% month-over-month; 2.8% year-over-yearThe report expects headline CPI at -0.2% month-over-month due to falling gasoline prices, but core inflation remains above the Fed’s target.
• U.S. one-year recession probability28%Based on all economic indicators, the U.S. recession probability rose to 28% this week.
• Japan 2Q GDP forecast1.3% saarRevised up due to a significant acceleration in real consumption.
• China 2Q26 real GDP forecast3.3% saar; 4.7% year-over-yearThe report expects growth to step down sharply after policy support from early in the year fades.
• South Korea BoK policy expectation+25bp to 2.75%The report expects the Bank of Korea to begin a cumulative 100bp hiking cycle next week.
• Philippines policy rate expectationTerminal rate 5.5%The report expects three consecutive 25bp rate hikes.

Impact & implications

For asset allocation, the report conveys a mix of “growth still resilient, inflation still not low enough, and a constrained policy pivot.” In the short term, improving consumption and PMIs support risk appetite and cyclical assets, but sticky core inflation, a hawkish FOMC tilt, and tightening pressure in EM Asia may raise rate volatility. Regionally, the recovery in Western Europe improves the macro backdrop for euro area risk assets and cyclical sectors; Japan warrants caution over conflicts among fiscal policy, monetary policy, and market stability; and if China’s domestic demand recovery remains insufficient, it may continue to affect global commodities, Asian supply chains, and the export of deflationary pressure.

Risks

• Energy prices rise again due to the Middle East situation, the Strait of Hormuz, or refined-product supply shocks.
• Global core inflation remains around 3% and delays central bank easing, or even drives further rate hikes.
• Internal FOMC divisions and hawkishness lead to upward revisions of the rate path.
• Japan’s expansionary fiscal policy and relatively accommodative monetary policy may be inconsistent with low inflation, low rates, and market stability.
• Weak domestic demand, property, and investment in China make growth more dependent on external demand and intensify deflationary pressure.
• France’s 2027 budget and presidential election political agenda may interact and increase public-finance pressure.
• EM Asia may enter a tighter policy cycle due to import prices, FX pressure, and the Fed’s hawkish stance.

What to watch

• U.S. June CPI and core CPI, especially services and core goods pressure beyond the decline in gasoline prices.
• U.S. June retail sales control group, where the report expects 0.4% month-over-month to validate consumption momentum.
• China 2Q26 GDP, June industrial production, retail sales, property, and investment data.
• Whether the July China Politburo meeting releases stronger signals of fiscal and monetary coordination.
• Whether the Bank of Korea hikes 25bp as expected and begins a 100bp cycle.
• The subsequent rate-hike or policy-normalization paths in the Philippines, Indonesia, and Malaysia.
• Whether Japanese government communication translates into substantive policy action that promotes macro stability.
• The political interaction between France’s 2027 budget bill and the presidential election campaign.
• Whether global PMIs, business confidence, and non-tech capital expenditure continue to recover.