Europe's weak recovery

 S&P Global's PMI for Euro-zone manufacturing looks as if it is still in an uptrend, and it is toying with the 50% recession line.  But it's very far from a boom.  Yes, the PMI is up from its low of 43 in 2023.  43, by the way, is consistent with a deep recession.  But it's been flat for the last couple of months.  The European Central Bank (ECB) has made it clear it's not going to act to fend off a slowdown or recession caused by Trump's trade war--a mistake in my opinion. 

For now, I'd say the European economy is troughing, i.e., diffusion indices like the PMI are at 50%, meaning there are more respondents with improving sales/production/employment than there are where those are falling. The recovery has prolly begun, but don't go looking for a robust upswing.  The ECB may well have to go back to cutting rates again.  Trump's swingeing tariffs on China are leading to China's exporters looking for new markets, with the effect that China's deflation is being exported to Europe.  Inflation is not going to be Europe's problem over the next 12 months; growth is.

Big 8 retail sales sluggish

The volume of retail sales (i.e., retail sales after removing the effect of inflation) is a good guide to the level of economic activity.

I only recently started to calculate Big 8 and world retail sales volume, and I have just fixed up the remaining gaps in my data. 

 I was puzzled as to why the Big 8 retail sales, which is a GDP-weighted index, was weakening.  And the answer is China.   I suspect Chinese retail sales will continue to weaken.  Soggy consumer spending is a sign of ppl's concerns about the weakness of the economy and the drag, on confidence and spending, of the property slump and the deflationary forces in the economy.  

Given that the Chinese authorities don't want to reignite the traditional property boom they always used in the past to get growth going again (and, given the demographics, it may in fact be anyway impossible), this slowdown is likely to continue.

The weakness is China is a big negative for world growth, especially since there are not exactly boom conditions elsewhere, while Trump's tariffs will put the kibosh on what growth there is.

China's slump

 The last time China's inflation was so negative was during the GFC (global financial crash), and before that in 1998/99 (the Asia crisis)  And yes, inflation is negative, i.e., consumer prices are falling.  This is called deflation, and is a sign of extreme economic weakness, but is also very dangerous in an economy with as much debt as China's.  Deflation means incomes and turnover are falling, but debt doesn't fall.  The only way to cut debt is to repay it from your profits or income, and as income/sales fall, this gets progressively harder, leading to more bad debt, more defaults, and further declines in the economy.   When this happens, it's called a debt-deflation, and it was a key factor in the collapse during the Great Depression from 1929 to 1933.

In the past, China has always averted this by encouraging investment in plant and equipment and in housing.    But her population is falling, so housing stimulus is unlikely to work.  House prices are falling, and housing investment is collapsing, leading to spectacular bankruptcies by giant property developers.  Many people have bought houses "off the plan" and are now paying mortgages for flats which will never be built.  Meanwhile, erratic policy towards the private sector is discouraging foreign investment, while domestic fixed asset investment continues to slide.   And it seems that until very recently, Xi doesn't appear to have been concerned. 

China matters.  Even though the official GDP data are very rubbery, it is prolly the world's second-largest economy with ~15% of world GDP, and it is also the world's largest importer of raw materials.

Falling prices in China is a clear sign that economic growth is much less than stated, and that the economy is in a slump.