Rising signs of modest growth and risks emerging in the job market clouded a major meetup of global policymakers at the U.S. Federal Reserve's (Fed) annual Jackson Hole conference last week, highlighting the changing trajectory of monetary policy as U.S. and European central banks eye cutting interest rates.

Even as the focus of U.S. and European central bankers shifts from high inflation to softening job markets, the Bank of Japan (BOJ) reaffirmed its resolve to wean its economy off decades of monetary support amid growing signs of sustained price growth.

The divergence in policy direction, coupled with lingering weakness in China, the world's second-largest economy, points to turbulent times for the global economy and financial markets.

The policymakers who met at the annual economic symposium already had a taste of what may come when weak U.S. jobs data earlier this month stoked recession fears and triggered a market rout aggravated by the BOJ's surprise rate hike in July.

So far, many analysts agree with the International Monetary Fund's (IMF) projection that the global economy will achieve modest growth in coming years as the U.S. achieves a soft landing, Europe's growth picks up and China emerges from the doldrums.

But such rosy projections rest on shaky ground with doubts emerging over prospects for a U.S. soft landing, eurozone growth failing to revive and China suffering from sluggish consumption.

While major central banks are veering toward rate cuts, it remains too soon to say whether the moves could be categorized as a "normalization" of restrictive policy or first steps to prevent growth from faltering further.

The uncertainty could leave global stocks and currencies susceptible to volatile swings.

"We could see other episodes of market volatility as markets are in a little bit of an uncharted territory," as major central banks enter a monetary easing cycle after tightening policy to deal with a burst of inflation, said IMF chief economist Pierre-Olivier Gourinchas.

"Japan is on a slightly different cycle. The markets have to figure out what it all means, and markets overreact. So, we will have further volatility," he said.

Growth risks

In his much-anticipated speech Fed Chair Jerome Powell on Friday endorsed an imminent start to interest rate cuts, declaring further job market cooling would be unwelcome.

It was a significant shift from Powell's comments as inflation surged in 2021 and 2022 and cemented the view the Fed was making a pivot from a policy that pushed its benchmark rate to a quarter-century high and held it there for more than a year.

New research presented in Jackson Hole showed the U.S. economy may be near a tipping point where a continued drop in job openings will translate into faster increases in unemployment.

European Central Bank (ECB) policymakers are converging on a September rate cut, partly on moderating price pressures but also because of a notable weakening of the growth outlook.

The eurozone economy barely grew last quarter as Germany, its biggest economy, contracted, manufacturing remains in a deep recession and exports have faltered, due largely to weak demand from China.

"The recent increase in negative growth risks in the euro area has reinforced the case for a rate cut at the next ECB monetary policy meeting in September," ECB rate-setter Olli Rehn said.

Even in Japan, recent inflation data showed a slowdown in demand-driven price growth that could complicate the BOJ's decisions on more rate hikes.

While consumption rebounded in the second quarter, there is uncertainty on whether wages would rise enough to compensate households for the rising cost of living, analysts say.

"Domestic demand is very weak," said Sayuri Shirai, a former BOJ board member now an academic at Keio University in Tokyo. "From an economic perspective, there's little reason for the BOJ to raise rates."

China worries

Adding to the gloom is China.

The world's most populous country is verging on deflation and faces a prolonged property crisis, surging debt and weak consumer and business sentiment.

Weaker-than-expected second-quarter growth forced China's central bank to make surprise interest rate cuts last month and heightened the chance of a downgrade in the IMF's growth projections for the country.

"China is a large player in the global economy. Weaker growth in China has spillovers to the to the rest of the world," said IMF's Gourinchas.

Further signs of slowing in U.S. and Chinese growth would bode ill for manufacturers across the globe already feeling the strain from tepid demand.

Private surveys showed factories struggled in July across the U.S., Europe and Asia, raising the risk of an underpowered global economic recovery.

For resource-rich emerging economies like Brazil, China's slowdown could hit metal and food exports but help alleviate inflationary pressure through cheaper imports.

Brazilian central bank Governor Roberto Campos Neto, speaking at Jackson Hole's closing session, said: "The net effect ... depends on how much the deceleration is."