Five things which can tell you how the economy will look by the end of 2018

It’s half time. We are halfway through the year, and in the worlds of economics and finance at least, what an odd six months it has been.

A huge amount has been thrown at the world economy. In no particular order there has been the ramping up of a trade war, European disarray on immigration, rising interest rates in America, the tax cut there, oil at a four-year high, evidence of a sharp slowdown in China, the still-running US high-tech boom, and that little matter of Brexit.

So what has happened? Not a lot. Global growth has been OK with recession fears still quite muted, while financial markets have ended up pretty much where they began the year. The dollar is up a bit, the FT100 and Dow Jones are down a bit, and most other share indices are pretty much where they were at the end of December, with the exception of some emerging markets including Shanghai, which is down 14 per cent.

Those rumbles continue now. But there is something else too. It is the growing talk of there being some sort of disruption in the autumn, with the main candidate being a sharp fall in equity prices – a sort of Black Monday – that reflected the fact that some stage what has now become an exceptionally long economic expansion must come to an end. So what should we be looking for over the next few months? Here are my top five.

First, I am really interested in inflation in the US and to a lesser extent in Europe. As you reach capacity limits, a rise in inflation is the signal that an economy is becoming stretched. At the moment there is no need for alarm, and unemployment has come down much more than in most post-war cycles, which is great. (Incidentally, the gap between unemployment among minorities and the rest of the population is narrower than in previous cycles, and that is great too.)

Actually, we get new US unemployment figures on Friday, raising the question as to how low can these go. They were down to 3.8 per cent in May, an 18-year low. My instinct is that they can go lower still without too much stress, for two reasons. One is that the last recession led to a lot of people leaving the labour force altogether – so-called discouraged workers – and good job opportunities should attract them back into the labour market.

The other is the new flexible way in which people work, with more part-timers, more people working from home, more older workers being enticed back into jobs, and so on. Maybe this too will allow US growth to run for longer with a recession.

Internationally there is of course the trade war stuff. Here the key element will be China’s trade and investment response. Will it be more tariffs, or more likely, will there be curbs on US companies already doing business in China?

It is quite possible, indeed probable, that China and the US can do a deal. It is certainly in both countries’ self-interest to do so, and any sort of rapprochement would remove a lot of worries. A deal with China is more important than one with Europe. Europe’s trade relations with the US will bumble on, but damage will be contained. Germany’s car industry will have a difficult couple of years but damage will not extend much beyond that.

This tension comes at a difficult time for China, as its new banking and insurance regulator, Guo Shuqing, is seeking to put the whole financial system on a firmer footing. He is really competent, measured and thoughtful, and he will move slowly and steadily to enable the banks to clear themselves of bad and doubtful debts. That he succeeds is obviously important to China, but also for the rest of us too. There has to be a nagging doubt that the next global financial crisis will be in China, not in the advanced economies.

Finally something not to worry about: stalled Brexit negotiations. They will be fractious and the deal that eventually emerges will be unsatisfactory for all. But most of the downside in both financial and economic terms is already known. Even a messy outcome will not be important enough to unseat the world economy, and any damage to the UK and Europe can be quite swiftly recovered. At least I hope so.