Canadian Economy Shrinks 1.6% As Trade War Crushes Exports

Economic

Forex

Summary:

The Canadian economy contracted for the first time in nearly two years as the trade war with the US pinched exports and business investment.

Canada’s gross domestic product shrank at a 1.6% annualized pace in the second quarter, Statistics Canada reported Friday from Ottawa. That’s the biggest decline since the Covid-19 pandemic and the first contraction in nearly two years.

While roughly in line with the Bank of Canada’s forecasts, it’s a worse print than was expected in a Bloomberg survey of economists, which had forecast a 0.7% decline.

The loonie tumbled to a session low versus the US dollar after the report, trading at C$1.3770 as of 8:35 a.m. in Ottawa. Canadian debt rallied across the curve, with the two-year yield falling to 2.66%.

Exports fell 27% on an annualized basis as US tariffs on Canadian goods shattered the country’s shipments abroad. That more than reversed a temporary first quarter boost in trade activity that was driven by shippers trying to front-run President Donald Trump’s tariff barrage. Imports declined 5.1%.

Business investment contracted 10.1% after rising just 1.1% in the first quarter, highlighting the mounting pessimism facing Canadian firms as they contend with the uncertain and constant changes to US levies and policy.

The data capture the severe damage inflicted by the trade war, which started earlier in 2025 as Trump threatened and then imposed tariffs on imports of many Canadian products, including on steel, aluminum, autos and other goods. The US is Canada’s largest trading partner.

At the same time, the report shows some evidence that the trade damage isn’t rapidly creeping through the broader economy.

On a monthly basis, preliminary industry-level data suggests Canada’s economy expanded 0.1% in July, after unexpectedly contracting 0.1% in June, the statistics agency said. There are some signs of strength in final domestic demand, which rose 3.5% in the second quarter, driven by a 4.5% increase in household consumption — an acceleration despite a major slowdown in population growth.

At the same time, the resilience of households is likely to be tested in coming months. Disposable income rose just 1.3% in the three months between April and June, the weakest growth in more than two years, likely reflecting persistent looseness in the country’s labor market.

The data also show Canadian firms are still adding to their stockpiles despite the subdued export demand from the US — inventory investment rose about C$19 billion in the second quarter, the most since 2022, when the country’s firms were putting more wares aside amid snarled supply chains.

General government expenditure rose 5.1%. Investment in residential structures rose 6.3%.

Bank of Canada officials said they’re open to further rate reductions if the economy weakens and price pressures are contained. Their next decision is on Sept. 17.

Before the release, traders in overnight swaps put the odds off a rate cut at the next meeting at about 40%. The policy rate is 2.75%.

At around 5% to 7%, the effective tariff rate that the US imposes on imports of Canadian goods remains among the lowest in the world. That’s because of a carve-out for goods that cross the border under the USMCA, the trade treaty between Canada, the US and Mexico that will be renegotiated in coming years.

Source: Bloomberg Europe

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Adam

Economic

Asia Market Wrap - China Stocks Continue to Rally, Goldman Increases CSI300 forecast to 4900

Asian stocks went up a little on Friday, following a good day for tech companies on Wall Street. Markets in Asia also had a good day, with the main Asia-Pacific stock index (excluding Japan) going up by 0.26%. In China, the tech-focused STAR 50 Index dropped by 3% after a big jump of more than 7% the day before.

Shares of the Chinese chip company Cambricon Technologies fell by more than 7% because the company had warned investors on Thursday that its stock price had risen too quickly since late July. Despite this, China's CSI300 index for top companies went up by 0.5%, and Hong Kong's Hang Seng Index rose by 0.8%. However, Japan's Nikkei index went down by 0.33%.

China's stock market is expected to have a record amount of trading this month, which shows how strong the current stock market surge is. This "bull run" is attracting many new investors every day. Even with concerns about the economy from US tariffs and a major property issue, and despite banks and regulators suggesting they might try to slow things down, there is a lot of excitement in the Chinese market.

In light of this positive trend, experts at Goldman Sachs raised their prediction for where the CSI 300 Index will be in 12 months, changing their forecast from 4,500 to 4,900.

European Open - Inflation Data in Focus

European stocks dropped slightly on Friday as investors waited for new economic information from Europe and a major US inflation report. These reports could give hints about when interest rates might be lowered in both regions.

The STOXX 600 index was down 0.2% and was on track for its first weekly loss in a month. This week, worries about a possible collapse of the French government and questions about the independence of the US Federal Reserve have put pressure on the stock market.

Recent data showed that consumer prices in France went up a bit less than expected in August. Later today, investors will be focused on new figures from Germany and the U.S. personal consumption expenditures report. In other news, shares of the French spirits company,

Remy Cointreau, went up by 1% after the company said a new trade agreement between the US and the EU would reduce the negative effect of US tariffs on its products.

On the data front, Inflation in France, Spain, and Italy came in slightly below forecasts, at 0.8%, 2.7%, and 1.7% respectively.

On the FX front, the euro's value stayed the same at $1.1677, while the British pound dropped slightly to $1.3474. Despite these small changes today, both currencies are set to have a good month, gaining more than 2% against the dollar. The dollar's value against the Japanese yen remained stable at 146.975 yen.

Elsewhere, the New Zealand dollar became a little stronger after the chairman of New Zealand's central bank, Neil Quigley, resigned. His resignation was due to controversy over how the central bank's governor had suddenly quit earlier in the year.

Meanwhile, China's currency, the yuan, reached its highest value against the dollar in 10 months. This is happening because China's central bank has kept its currency fixings stable and because of a booming stock market in China.

On the other hand, the Indian rupee fell to its lowest value ever, due to concerns about how new, high tariffs from the U.S. will affect India's economy.

Currency Power Balance

Oil prices dropped on Friday, but they are still on track to end the week higher. The market is being pulled in two different directions: there's uncertainty about how much oil Russia will supply, but there are also expectations of lower demand as the summer driving season in the U.S., which uses the most fuel, is ending soon.

For the day, the price of Brent crude oil for October delivery went down by 36 cents to $68.26, and the more popular November contract slid 29 cents to $67.69. The price of West Texas Intermediate crude oil also fell by 28 cents to $64.32.

Even with today's drop, Brent crude is expected to finish the week with a 0.8% gain, and WTI is set to rise by 1%.

Gold prices went down a little bit on Friday, but they're still on track to increase for the month. This is happening as people wait for new U.S. inflation data, which will give more hints about when the Federal Reserve might cut interest rates.

The price of gold was down 0.1% at $3,414.07 per ounce. In August, gold went up by 3.6% and reached $3,423.16 on Thursday, which was its highest price since July 23rd.

German Unemployment at Highest Level in 10 Years

For the first time since 2015, the number of unemployed people in Germany has gone above three million, showing how a long period of economic struggles is finally hurting the job market. This three-million figure is seen as a key point that separates a strong job market from a weak one.

The new data shows that the number of unemployed people in Germany increased by 45,700, bringing the total to 3.025 million. Although the number of unemployed people adjusted for seasonal changes actually went down slightly, the overall increase is part of a longer trend. Since hitting a low in May 2022, unemployment has been steadily rising because the economy has been struggling for over five years. This is a classic example of how a weak economy eventually leads to a weaker job market.

Economic Data Releases and Final Thoughts

Looking at the economic calendar, the European session has been busy with a bevy of inflation data. We still wait on German inflation data which will be released a bit later in the day.

The US session is key today as markets brace for the Feds preferred inflation gauge, the US PCE data release. I do anticipate a 0.3% increase for the month, which is what most experts are predicting. If the increase is slightly higher, it could cause the dollar to go up a little, but it's unlikely to change the strong expectation that the Fed will cut interest rates in September. This is because of the recent reassuring comments made by Fed Chair Powell at Jackson Hole.

For now, the dollar's value (measured by the DXY index) will likely stay around its 50-day average of 98.0, even though there's still a chance it could drop further.

Chart of the Day - FTSE 100

From a technical standpoint, the FTSE 100 has finally broken below the neckline of the head and shoulder pattern which has been developing this week.

The index has fallen about 50 points already since the neckline break and is trading below the 100-day MA. A brief bounce has taken place but the possibility of another 50-60 point drop toward the 200-day MA could materialize.

Support is immediately provided by the 9180 handle before the 200-day MA at 9136 becomes the area of focus.

FTSE Four-Hour Chart, August 29. 2025

Source: marketpulse

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Warren Takunda

Stocks

London stocks had fallen further by midday on Friday, with banks under the cosh after a think tank raised the possibility of a potential windfall tax on the sector, as investors eyed the latest US PCE inflation numbers.

The FTSE 100 was down 0.3% at 9,193.59.

Russ Mould, investment director at AJ Bell, said: "The UK stock market ended the week on a sour note amid suggestions that the government could help to fill its fiscal hole with a new tax on the banking sector.

"Some of the biggest names in the FTSE 100 are lenders so if they’re out of favour on the stock market, it acts as a drag on the whole UK blue-chip index.

"NatWest, Lloyds and Barclays were the FTSE 100’s biggest fallers on Friday morning as investors wondered if the era of bumper profits, dividends and buybacks is now under threat.

"These companies have enjoyed a strong run on the stock market in recent years, and they’ve also played an important role in lending money to small and large businesses which helps to create jobs and support the UK economy.

"The timing of the tax debate, fuelled by a report from think-tank IPPR, is unfortunate given it coincides with a new poll from Lloyds suggesting a rise in business confidence, despite cost pressures. This positive sentiment could be threatened if businesses take the view that a new tax on banks might force lenders to tighten their lending criteria."

Away from banks, engineering and consulting business Wood Group was in focus after selling its transmission and distribution division in North America as it sheds non-core businesses ahead of its possible takeover by Sidara.

North America T&D, which provides power infrastructure engineering for substations, transmission, distribution and renewable generation across Canada and the US, is being sold to Qualus for $110m.

Investors were also mulling the latest Lloyds Business Barometer, which showed that business confidence rose in August despite a drop in economic optimism.

The index of business confidence ticked up two points to 54% this month, marking the fourth consecutive monthly increase.

Economic optimism edged down for the first time since April, however, with a three-point decline to 44%, but it remains above the long-term average of 19%.

Lloyds said the increase was driven by a five-point rise in businesses confidence in their trading prospects to 63 - the highest level since 2014.

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said: "This continued upward trend in business confidence suggests UK firms remain optimistic about their own trading prospects while there is a modest cooling of confidence in the wider UK economy.

"Firms are focusing on what they can control, with many looking to pursue growth opportunities, including entering new markets and adopting new technologies. Wage expectations have seen a notable shift this month, but it remains to be seen whether this signals the start of a sustained trend or a temporary uplift, as they have been broadly stable in recent months."

Looking ahead to the rest of the day, attention will turn to the US PCE numbers for July, due at 1330 BST.

Mould said: "Inflation data will take centre stage later today across the pond. The core PCE price index is the Federal Reserve’s preferred method of measuring inflation in the US economy. The consensus forecast is for inflation to stay level at 0.3% month-on-month for July.

"Fed chair Jerome Powell has already indicated that the central bank has had a slight shift in thinking, with the market now expecting an 85% chance of a 25-basis point interest rate cut at September’s meeting. Today’s inflation figure will play a crucial role, alongside jobs data, in determining whether the Fed cuts at this meeting, and if so, by how much."

Source: Sharecast

Risk Warnings and Disclaimers

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Adam

Stocks

MARKET WRAPS

Stocks in Europe fell Friday ahead of the July edition of the Federal Reserve's preferred inflation measure, the personal-consumption expenditures index.

In the U.K. reports of another tax increase to shore up the country's finances were weighing on financial stocks, putting pressure on banking shares .

"The drip feed of potential tax rises to be included in this budget have dominated the papers this month, however, so far, the FTSE 100 has been resilient," XTB said.

Yet, it now seems the Treasury Chief was going after the index's big hitters like banks, it added, which could weigh on the index ahead of the autumn budget.

In contrast, European defense stocks climbed as underlying political risks and structural shifts toward higher defense spending remained compelling for long-term investors, Deutsche Bank said.

Although hopes for a cease-fire in Ukraine dampened enthusiasm for the sector, valuations have moderated slightly from their June high and remained elevated.

"Less U.S. commitment to fund European defense needs, new NATO targets involving European re-armament and ongoing tensions in the Middle East and Eastern Europe should provide sustained demand in the longer term."

Stocks to Watch

AXA' s recent share-price fall was overdone and offers an opportunity, Berenberg said.

"With its strong solvency and broad geographic diversification, it is well-placed to face any challenges."

The risk-reward balance in Schaeffler AG shares seemed attractive going into the company's capital markets day mid-September, Citi said as it raised its recommendation on the stock to buy from neutral and increased the target price to 6.75 euros from 5.00 euros.

Swedbank's consolidation of Entercard was set to lift consensus estimates for net interest income and fees, Citi said separately.

U.S. Markets:

Stock futures edged lower ahead of the release of the PCE index.

In addition, a judge is expected to rule this morning on Fed governor Lisa Cook's bid for a temporary restraining order against Trump.

Cook sued Trump on Thursday, seeking to block him from firing her from the central bank.

Results from Chinese e-commerce giant Alibaba are due this morning.

Forex:

The dollar rose modestly after Fed Governor Christopher Waller said he didn't believe a jumbo rate cut was necessary in September.

Waller said Thursday he would support a 25 basis-point cut but felt that a 50 basis-point move was unwarranted based on current data.

The comments came after U.S. economic growth data were revised higher Thursday.

Meanwhile, U.S. core personal consumption expenditures price data, should remain too elevated to support a larger imminent rate cut, Commerzbank said.

The "downside potential for the dollar is likely to remain limited for the time being."

Bonds:

SEB expected downtrend is expected in Treasury rates, with Fed rate cuts--rather than fiscal concern--to be key for markets in the coming quarters.

"Historical patterns suggest that downside to bond yields may prevail throughout the easing cycle, which may extend until next autumn."

Barclays sees two-sided risks to its year-end target of 2.75% for 10-year Bund yields.

"We feel Bunds are primarily reliant on bullish impulses from abroad, whereas domestic factors continue to create a grind towards higher yields with the European Central Bank's wait-and-see approach."

In the short term, the tug of war between bullish and bearish factors is likely to leave Bunds in their recent range, albeit with a further upward drift, it added.

SEB said the 10-year Bund yield was expected to trade in the 2.60%-2.80% range through the autumn before rising to 3% next year.

Commerzbank recommended tactical longs if the 10-year Bund yield rises above 2.70%.

Dutch pension reform has seen their government bond yield curve steepen more than other eurozone countries year to date, Barclays said.

Energy:

Oil prices slipped but remained on track for a modest weekly gain, as traders balanced concerns over softer demand heading into the fall and risks of disruption to Russian supplies.

Both benchmarks settled higher in the previous session, supported by Ukraine's attacks on Russian energy infrastructure and German Chancellor Friedrich Merz reportedly saying direct talks between Russia's Vladimir Putin and Ukraine's Volodymyr Zelensky wouldn't happen.

"The lack of progress towards a peace deal means risks of sanctions and secondary tariffs continue to hang over the oil market," ING said.

However, growing fears of a looming supply glut later this year are clouding the market's outlook, capping price gains despite a higher geopolitical-risk premium. #

Gas

European gas prices were set for a weekly loss of more than 6%, as the region continued to replenish its inventories despite lower Norwegian flows due to maintenance works.

"Europe is heading into the winter better prepared than predicted a few months ago," ANZ said.

"Fuel storage sites are more than 76%, putting them on track to reach 80% within a month, a level they are legally required to meet by November 1."

Prices were also supported by increased availability of LNG cargoes as China scales back its imports amid ample domestic supplies.

Metals:

Gold futures inched lower but were on track to end the week significantly higher on mounting expectations of a September U.S. rate cut.

The medium-term outlook for gold is cautiously positive, though short-term gold prices may fluctuate sharply on economic data,

Aluminum

Aluminum prices rose as producers warn of supply constraints in the base metal.

Beijing has capped aluminum smelting capacity to rein in power consumption and emissions, ANZ said.

EMEA HEADLINES

Inflation Shows No Sign of Accelerating in France, Spain as ECB Mulls Next Steps

Annual inflation showed no signs of picking up pace in two of the eurozone's largest economies, maintaining a slim possibility of a fresh cut to interest rates at next month's European Central Bank policy meeting.

French consumer-price inflation, harmonized to European Union standards, was 0.8% in August, slowing from a 0.9% annual rate in July, figures from France's statistics agency showed Friday. The continued easing in price rises in the eurozone's second-largest economy takes annual inflation further below the 2% level ECB policymakers consider optimal. That represents "a glimmer of hope for ECB doves," Pantheon Macroeconomics' Claus Vistesen wrote.

E.U. to Scrap Duties on U.S. Industrial Goods as It Scrambles to Soften Auto Tariff Blow

The European Union will move to eliminate all tariffs on U.S. industrial imports and expand access for American farm products, part of an effort to shield European automakers from steeper duties on their exports to the U.S.

The proposals follow a joint statement last week in which Brussels and Washington agreed to cut levies on European autos to 15% from a provisional rate of 27.5%. In return, the EU committed to lowering tariffs on a range of U.S. goods.

Europe Moves to Reimpose Sanctions on Iran for Nuclear Work

BERLIN-The U.K., France and Germany moved to reimpose all the international sanctions on Iran that had been lifted under the 2015 nuclear deal, a decision that European governments hope will compel Tehran to resume nuclear negotiations with the Trump administration.

The European countries said they had triggered the so-called sanctions snapback because of Iran's broad breaches of the terms of the 2015 deal. The U.S. left the agreement in 2018 but the three European countries, Iran, Russia and China remained part of it.

GLOBAL NEWS

Trump Leans on National Security to Justify Next Wave of Tariffs

The Trump administration plans to expand national-security tariffs on steel, aluminum and a variety of other industries in coming months in hopes of redirecting production in these sectors to the U.S. and thwarting potential legal threats in the trade war.

Tariffs on steel and aluminum were expanded this month, covering more than 400 new product lines with 50% levies and increasing compliance costs for companies. Those charges will likely be broadened further, along with expansions of existing tariffs on copper and automotive parts.

New Trial Ordered for Three Former Police Officers in Death of Tyre Nichols

A Tennessee judge has ordered a new trial for three former Memphis police officers previously convicted of federal charges in the beating death of Tyre Nichols, after their lawyers argued the judge who handled their trial was biased against them.

U.S. District Judge Sheryl Lipman on Thursday ordered the new trial for Tadarrius Bean, Demetrius Haley and Justin Smith. The former police officers had been found guilty in October 2024 on federal charges connected to the death of Nichols. Two other officers also charged had pleaded guilty before the federal trial.

ICE Eyes Naval Base Outside Chicago as Operations Center

The Trump administration is weighing the use of a naval base north of Chicago as an ICE operations center, border czar Tom Homan said Thursday.

"The planning is still being discussed," Homan told reporters.

Chinese Money Launderers Are Moving Billions Through U.S. Banks

Chinese money launderers appear to have moved some $312 billion in illicit transactions through U.S. banks and other financial institutions in recent years to aid Mexican drug cartels and other criminals, the Treasury Department said.

This growing marketplace connecting dirty cash from Mexico's drug cartels to Chinese expats looking to get their savings out of China is drawing scrutiny from the Trump administration, which wants banks to help crack down.

Source: morningstar

Risk Warnings and Disclaimers

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Blue River

Technical Analysis

Today’s Tokyo inflation data and August consumer confidence figures reinforce expectations of a potential 25-basis-point rate hike by the Bank of Japan in October, as it continues along its path of monetary policy normalization.

Tokyo inflation and Japan consumer confidence support another BoJ rate hike

Fig. 1: Tokyo core-core inflation & Japan Consumer Confidence as of Aug 2025 (Source: TradingView)

Tokyo core-core inflation (excluding food and energy) rose by 3% y/y in August, a slight slowdown from July’s print of 3.1% but still well above BoJ’s long-term inflation target of 2% (see Fig. 1).

Japan’s consumer confidence index improved further to 34.9 in August from its current year-to-month low of 31.2 printed in April. This marked the highest reading since January seen across all the components; overall livelihood (32.7 vs 31.4 in July), income growth expectations (39.4 vs 38.5), employment outlook (39.3 vs 37.6), and willingness to purchase durable goods (28 vs 27.4).

Fig. 2: USD/JPY minor trend as of 29 Aug 2025 (Source: TradingView)

Preferred trend bias (1-3 days)

Bearish bias below 148.00/148.18 key short-term pivotal resistance.

A break below 146.40 intermediate support (minor swing low area of 14 August 2025) opens the scope for a further potential slide towards the next supports at 145.85 (minor swing lows of 8 July/10 July/24 July 2025) and 145.50 (the lower boundary of the ascending range configuration) (see Fig. 2).

Key elements

Price actions of the USD/JPY have traded back below its 20-day moving average, and it is now challenging the 50-day moving average.
The USD/JPY is still oscillating within a medium-term ascending range configuration since the 22 April 2025 low of 139.90.
The hourly Stochastic oscillator is now attempting to shape a bearish breakdown from its parallel ascending support, which suggests a potential resurgence of bearish momentum conditions at least in the short term.

Alternative trend bias (1 to 3 days)

The key near-term risk event is the upcoming release of July’s US core PCE inflation, along with personal income and spending data later today, which will play a pivotal role in shaping Federal Reserve rate cut expectations ahead of the September FOMC meeting.

A clearance above 148.18 invalidates the bearish scenario and sees a squeeze up towards the upper limit of the medium-term ascending range configuration for the next intermediate resistance to come in at 148.75 (also close to the 200-day moving average).

Source: ACTIONFOREX

Risk Warnings and Disclaimers

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Samantha Luan

Economic

Political

Germany’s ruling CDU/CSU bloc is demanding stricter limits on welfare, with party leaders pointing to high rates of reliance on the citizen’s allowance among Afghans and Syrians.

Deputy parliamentary group leader Mathias Middelberg said job centers must do more to place these groups into work, stressing there is “still considerable potential for catching up in terms of taking up employment.”“Just 100,000 more people in work instead of relying on the citizen’s allowance could, depending on wage levels, relieve the federal budget in the low single-digit billion range every year,” the lawmaker told Bild.

According to government figures cited by Middelberg, 52.8 percent of Syrians and 46.7 percent of Afghans in Germany rely on the citizen’s allowance, while only 36.7 percent of Syrians and 37 percent of Afghans hold jobs subject to social security contributions.“We cannot accept that hundreds of thousands of young asylum seekers here in Germany are unemployed for decades,” he said.

The call comes amid soaring welfare costs, with annual spending on the citizen’s allowance at around €52 billion. Statistics from the Federal Employment Agency (BA) last year showed that of the more than 4 million people who can work but receive social benefits, more than 2.5 million have a migration background, constituting 63.5 percent.

At the start of 2024, of the 2.6 million non-Germans registered for benefits, 706,000 were from Ukraine, 512,000 from Syria, and 201,000 from Afghanistan.CSU leader Markus Söder and CDU General Secretary Carsten Linnemann said that those unwilling to work should no longer receive support.Chancellor Friedrich Merz reinforced the message over the weekend, warning that Germany’s welfare model is no longer sustainable. “The welfare state as we have it today is no longer financially viable with what we are achieving economically,” he said.

Rising unemployment, bankruptcies, and inflation risks are also evidence of the mounting strain.Alternative for Germany (AfD) co-leader Alice Weidel slammed the Grand Coalition government for continuing to oversee Germany’s economic decline on Tuesday, pointing to figures cited by Welt, which revealed 114,000 industrial jobs had been lost within the last year.“The politically motivated deindustrialization continues unabated, even more than six months after the new elections. No economic turnaround without the AfD!” she wrote.

Source: Zero Hedge

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Risk Warnings and Disclaimers

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Michelle

Economic

Forex

(Aug 29): Economists anticipate ho-hum US economic growth for the remainder of the year and well into 2026, with steady, tariff-driven inflation buffeting consumers.

Gross domestic product is now set to grow 1.1% in the second half of the year, a downshift from average growth of 1.4% during the first six months, according to the latest Bloomberg monthly survey of economists. Consumer spending, the economy’s primary growth engine, is also seen expanding at a 1.1% pace in both the third and fourth quarters.

At the same time, economists expect core inflation — measured by the personal consumption expenditures price index — will top out at an average of 3.2% in the fourth quarter. While year-on-year inflation is expected to gradually ease through 2026, it will remain above the Federal Reserve’s 2% target.

The results underscore expectations that higher import duties imposed by President Donald Trump will feed through more broadly into consumer prices and only gradually dissipate next year.

The Aug 22-27 survey of 79 forecasters points to an economy that will continue to adjust to the effects of the president’s trade and investment policies that he hopes will spark stronger growth. It also indicates the Fed will remain challenged by stubborn price pressures and uninspiring economic activity.

Fed chair Jerome Powell last week said the effects of higher tariffs on prices is “now clearly visible,” but he carefully opened the door to an interest-rate cut in September given the greater risk the job market could falter. Economists in the Bloomberg survey expect the unemployment rate to rise to 4.4% in the fourth quarter and stay there through most of 2026.

Still, forecasters now put the chances of a recession in the next 12 months at 32%, the lowest since March. While overall economic growth is expected to be modest, respondents see an acceleration in the growth of business investment through 2026.

The Bureau of Economic Analysis reported on Thursday that the US economy expanded in the second quarter at a slightly faster pace than initially estimated, helped by a bigger increase in intellectual property products and business equipment.