US retail sales surprise on upside, China stumbles in tariff-hit economy

The global economy is at a crossroads with US consumers still spending, China slowing down, and Britain posting a surprise rebound. From inflationary pressures in America to tariff headwinds in Asia and labour shortages in Europe, the week’s data paints a mixed picture of resilience and strain. US retail sales rose for the second straight month in July, marking the first back-to-back advance this year. The data eased fears of a sharp pullback in spending, even as households remain wary of higher prices from potential tariff-driven inflation.

As per Bloomberg, the July gains were broad-based and the previous month’s numbers were revised upward. Still, economists caution that weakening consumer sentiment and a softening jobs market could weigh on future demand. At the same time, inflation showed signs of quickening. Underlying US inflation accelerated in July at the fastest pace since the start of 2025, fuelled by services such as airfares. While goods prices rose only modestly, Bloomberg noted that the surge in services pushed the core Consumer Price Index higher, raising questions about whether tariffs could add further inflationary pressure.

Housing affordability crisis deepens

Beyond retail spending, US households are also grappling with worsening housing affordability. According to Bloomberg, buying a home has become significantly more expensive than renting across America’s largest cities. The imbalance stems from limited new construction since the 2008 financial crisis, a “lock-in effect” with homeowners holding onto low-rate mortgages, and regulatory policies that have made both building and buying more costly.

China slows as tariffs bite

China’s economy slowed across the board in July, with factory activity, investment, and retail sales all underperforming. Bloomberg reported that Beijing’s crackdown on destructive price wars, coupled with the impact of higher US tariffs, has weighed heavily on growth. The urban unemployment rate climbed to 5.2 per cent, while outstanding loans contracted for the first time since 2005, a worrying signal of credit stress.

India too faces tariff-related pressures. A proposed 50 per cent US duty on imports would be the highest rate imposed on any Asian country. Bloomberg highlighted that such a move could threaten Prime Minister Narendra Modi’s decade-long “Make in India” campaign. Despite government efforts, manufacturing’s share of India’s economy has fallen from 16 per cent in 2015 to 13 per cent last year, according to World Bank data.

UK economy delivers a surprise

Across the Atlantic, Britain’s economy outperformed expectations in the second quarter. The stronger growth offered some relief for Chancellor Rachel Reeves but also complicated the Bank of England’s decision-making.

Bloomberg reported that Britain’s labour market appears to be stabilising. Payrolls declined by 8,353 in July, but this was the smallest drop since January, suggesting the worst of the jobs downturn may have passed. For the Bank of England, however, this improvement raises the bar for further interest-rate cuts.

Russia struggles with war economy strains

Russia’s economy is showing signs of strain despite heavy government spending. Bloomberg reported that oil revenues have slumped, the budget deficit has widened to its largest in more than three decades, and inflation alongside interest rates remain painfully high.

Behind the scenes, some insiders in Russia’s financial sector are warning of a looming debt crisis, exposing cracks in President Vladimir Putin’s war economy.

Germany faces skills shortage

In Europe’s largest economy, Germany is confronting a deepening skills gap. Bloomberg cited a survey by the German Chamber of Commerce and Industry showing that nearly half of companies offering vocational training in 2024 were unable to fill all positions. Worse, over one-third received no applications at all.

With one in three trainees quitting before finishing, businesses are finding it increasingly difficult to hire qualified staff, a trend that could weigh on Germany’s long-term competitiveness.

Emerging markets: Brazil’s inflation eases

Elsewhere, Brazil provided some relief. Inflation fell more than expected in July, according to Bloomberg, helping consumers. But with borrowing costs still near record highs, the central bank is expected to maintain its restrictive stance for now.

Trump reshaping the dollar’s dominance

Beyond individual economies, the global financial order itself is under strain. Bloomberg noted that President Donald Trump’s push to redesign trade rules and tariffs in favour of the US is testing one of the cornerstones of post-war stability: the dollar’s status as the world’s reserve currency.

While the dollar remains dominant, efforts by countries like China and Russia to diversify away from it, coupled with America’s more protectionist stance, have raised questions about whether this supremacy can be sustained.

The latest data, as per Bloomberg, highlights a world economy where the US still shows resilience, but cracks are widening elsewhere, from China’s slowdown and Russia’s fiscal strains to Europe’s labour shortages. Against this backdrop, global markets remain sensitive to the policy shifts in Washington, Beijing, and London.

(With inputs from the agencies)