The gap in performance "certainly captures the imbalanced nature of growth this year," said Jim McCormick, head of cross-asset strategy at NatWest.
The global backdrop will frame discussions when the Federal Reserve holds its annual policy symposium this week in Jackson Hole, Wyoming, at which Chairman Jerome Powell will speak. The Fed's two interest-rate hikes of 2018 have helped lift the dollar almost 6 per cent on a trade-weighted basis this year, making it costlier for international
borrowers to repay loans.
For now, Mark Nash, head of fixed income at Old Mutual Global Investors, bets the domestic economy
will keep the Fed raising rates although it could end up creating headwinds for itself.
“Once that pain in emerging markets gets particularly acute, that naturally will spread back to the US and change things in terms of how the Fed needs to manage domestic monetary policy,” he said on Bloomberg Television. "For now, you can't fault what Powell is doing, but the implications of it might come back to haunt him."
Evidence of a moderation outside of the US is already visible. Economists at JPMorgan Chase & Co. say although overall global growth is higher than its long-term trend thanks to the US, the share of countries performing above potential has fallen to 60 per cent from about 80 per cent in 2017.
China's momentum has stalled as policy makers curb risky lending and the trade dispute with the US begins to bite, prompting policymakers to shift gears to signal a willingness to support activity. Economists also see a slowdown in Japan.
Across much of Europe, surveys and confidence indicators have turned lower this year in part because of export concerns. German factory orders -- a gauge of future output in the euro area's largest economy
-- posted their first annual decline in almost two years in June.
Italy is squaring up for a clash with investors over its fiscal plans, with implications for debt costs, while there's no end to the uncertainty surrounding Brexit in the UK.
Then there's emerging markets. Turkey's lira has plunged amid a political crisis, Venezuela has executed one of the biggest devaluations in history and Argentina is jacking up rates to protect its currency. While none have the heft to drag the global economy
into a recession, the resulting fallout on markets could be a blow to confidence if the pain spreads to emerging market powerhouses such as Brazil.
Tom Orlik, chief economist at Bloomberg Economics, doesn't expect emerging markets take down the world. He observes that excluding China, emerging and developing economies accounted for 24.6 per cent of global output last year, down from a peak of 26.7 per cent in 2013.
Cross border trade is though deteriorating, with growth rates in emerging economies slowing by a fifth in August, according to a gauge by logistics giant Kuehne + Nagel Group. They calculate that commerce in Brazil, South Korea, Taiwan, and India is shrinking by more than 5 percent year-on-year.
Asia’s slowing bears watching. Excluding Japan, the region’s contribution to global growth was 40 percent in 2017 compared with 23 percent in 2007, reflecting its larger economic size and deepening integration with the world, according to Robert Subbaraman, Singapore-based head of emerging markets economics at Nomura Holding.
“It is no longer a question of ‘if’ but more a matter of ‘how much’ Asian growth will slow in the second half," Subbaraman said.