Global Growth Outlook Downgraded
The International Monetary Fund (IMF) lowered its global growth outlook in its April World Economic Outlook, signalling slower – but not recessionary – global growth. The IMF now expects global growth of 3.1% in 2026 and 3.2% in 2027, below pre-pandemic averages, citing geopolitical tensions, higher commodity prices, tighter financial conditions, and persistent inflation.
For markets, the key takeaway is a “slower growth, still inflationary” environment, which limits how aggressively central banks can cut interest rates and could keep pressure on bond yields and market volatility.
Equities Stay Resilient, Led by AI and Tech
Despite macro uncertainty, equity markets remained resilient as strong earnings and AI enthusiasm supported risk appetite. The S&P 500 and Nasdaq recording their biggest monthly gains since 2020. AI-linked and semiconductor stocks remained the main driver, with the PHLX chip index reaching a record and rising 55% year-to-date by early May. However, the rally also increased concentration risk, as markets became more dependent on a small group of large technology companies.
China’s Recovery Remained Fragile
China’s economy showed some signs of stabilization, with manufacturing expanding for a second month in April and export orders improving as buyers stockpiled amid supply-chain concerns. However, the recovery remained uneven. The official non-manufacturing PMI fell to 49.4, signalling weakness in services and domestic demand, while property stress and cautious consumers continued to weigh on growth.
Tensions between the United States and China remained high despite a fragile trade truce reached in late 2025 and preparations for the Trump–Xi summit in Beijing on May 14–15. Competition over AI, semiconductors, and critical supply chains continued, with China tightening export controls on rare earths and strategic materials, while the United States maintained restrictions on advanced chips and AI-related exports on national security grounds.
Japan Markets Reach New Highs
Japan’s stock market remained one of the strongest performers globally in May, with the Nikkei 225 reaching fresh record highs as strong technology earnings, AI-driven momentum, and continued foreign investor inflows boosted sentiment. A weaker yen continued to support export-focused companies, particularly in the technology and manufacturing sectors, while corporate governance reforms and improving wage growth strengthened confidence in Japan’s economic outlook.
At the same time, the Bank of Japan maintained a cautious approach to further interest rate increases despite rising inflation pressures, helping keep financial conditions supportive for equities.
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