Global Economy Reviews

08.09.2017 17:15 World Economy Review - August 2017

The world economy looks well on its way to a year of faster, firmer growth after rising at its most rapid pace in 2 1/2 years in the second quarter.

The expansion is broad based as long-time laggards Japan and the euro area perk up. Even more encouraging: The gains look sustainable because they`re not generating much in the way of inflation or other excesses that frequently presage a downturn, economists said.

Global gross domestic product is projected to increase by 3.4 percent in 2017 and 3.5 percent in 2018, according to the median forecast of economists surveyed by Bloomberg. While that would be a come down from an estimated 4 percent plus pace in the second quarter, it would still represent a clear acceleration from last year`s 3.1 percent advance.

The pick-up has been paced by budding rebounds in Europe and Japan, two economies that until now had been seen as drags on the global economy.

After years of lackluster growth, the euro-area economy is starting to build momentum. The expansion accelerated to 0.6 percent in the second quarter, and it`s more evenly spread across the 19-nation region than in the past. The Netherlands posted the strongest data in a decade and Italy, long an slouch in the region, may see the best performance since 2010 this year.

That`s good news for European Central Bank President Mario Draghi, who wants to make sure the recovery is well established before reining in stimulus. Inflation is still undershooting the ECB`s goal and there`s little sign of significant wage gains as yet. That`s allowing Draghi to take his time in scaling back support for the region`s economy.

A 4 percent annualized surge in Japanese GDP in the second quarter put the nation in an unexpected spot: at the top of the growth table among the Group of Seven industrial economies.

The strongest domestic demand in years helped drive Japanese GDP to a sixth consecutive quarter of expansion, elevating hopes for a sustainable recovery in an economy that`s been better known in recent years for tepid inflation and a declining population than beating forecasts.

While the unexpected strength in Europe and Japan is providing fuel for the global upswing, the expansion`s fate ultimately rests on the performance of the world`s two biggest economies, the U.S. and China. And there the omens are favorable.

JPMorgan Chase & Co. this week raised its forecast for U.S. growth in the third quarter to an annualized 2.25 percent from 1.75 percent. The move followed news of an unexpectedly strong rise in retail sales in July. GDP rose 2.6 percent in the second quarter.

Shoppers splurged at Internet retailers, department stores, restaurants and auto dealerships last month, boosting sales by 0.6 percent, the most this year.

Consumers are benefiting from a strong jobs market and healthy balance sheets while companies are enjoying a revival in profits and rock-bottom borrowing costs, he said. At the same time, the risks to the U.S. from abroad have diminished as world growth has strengthened.

Low inflation -- it`s fallen short of forecasts for five straight months -- means there`s little pressure on the Federal Reserve to act forcefully to rein in the recovery, even with unemployment at a 16-year low.

In China, a multi-year slowdown has stabilized, with economists forecasting an expansion of 6.7 percent this year. The IMF increased its estimate for the nation`s average annual growth rate through 2020 -- to 6.4 percent from 6 percent -- while warning that it would come at the cost of rising debt that increases medium-term risks to growth.

Of course, there`s always the chance that something could happen to upset the worldwide expansion, from an outbreak of hostilities between North Korea and the U.S. to a sudden swoon in financial markets as central banks scale back their support.

Yet for now at least, the global economy is on a “positive trajectory,” said Bloomberg Intelligence Chief Economist Michael McDonough. “There`s a pretty good foundation to build on for the next year or so.”

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07.08.2017 16:15 World Economy Review - July 2017

The National Institute of Economic and Social Research have revised forecasts for world GDP growth in 2017 upward as several major economies exceed expectations for the year.

Global growth has been revised to 3.6% by the NIESR, while it has maintained its 2018 and long-term projections of 3.6% and 3.4% respectively.

In the report released by the research institute, strong performances from the Euro Area and Japan in particular drove the 2017 forecast higher.

Both areas have seen super-low interest rates in recent months and years, with the NIESR pointing towards this as a factor in their economic growth.

“Recent data for several major economies point to a more significant pick-up in global growth this year than we projected in May. Among the advanced economies, the upward revisions have been most marked for the Euro Area and Japan,” the report said.

“The improvement in growth performance seems due partly to the highly accommodative monetary policies of recent years but also to a turnaround in the stance of fiscal policies since 2015.”

A lessening of political instability in Europe was also referenced as a major reason behind the revision of the forecast, but the NIESR added it was still at the risk of further weakness owing to political events.

“In the euro area, political uncertainty has been reduced by the French elections, but risks of financial instability remain, especially with an incomplete banking union. More broadly, economic recovery remains fragile and could be derailed by policy mistakes.”

According to the report, lower-than-expected inflation across major economies presents a unique dilemma for central banks as they seek to maintain sustainable growth.

“Past relationships both between unemployment and inflation, and between interest rates and demand, seem unreliable,” it said.

“Economic recoveries are fragile, the costs of any renewed weakness are potentially high, and consistently below-target inflation in recent years jeopardizes the credibility of the symmetry of inflation targets.”

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09.07.2017 13:17 World Economy Review - June 2017

In its latest economic outlook, the Organization for Economic and Cooperation Development (OECD) projected accelerated global growth for the 2017-2018 period, saying "greater efforts are needed to ensure that the benefits from growth and globalization are more widely shared."

Updating its last estimate issued on March, the Paris-based think-tank saw global growth in 2017 at 3.5 percent, up by 0.2 percentage. The figure was set to accelerate to 3.6 percent in 2018 due to "stronger business and consumer confidence, rising industrial production and recovering employment and trade flow."

"Among the major advanced economies, the recovery will continue in the United States," the organization estimated.

However, it revised down its gross domestic product (GDP) forecast this year to 2.1 percent this year and 2.4 percent next year from previous estimates of 2.4 percent and 2.8 percent respectively.

The organization report showed a steady outlook for the euro area at 1.8 percent over the period while that of Japan would increase to 1.4 percent this year before slowing to 1.0 percent in 2018.

In China, growth is expected to slow to 6.6 percent in 2017 and 6.4 percent the following year in 2018, according to the OECD data.

"After five years of weak growth, there are signs of improvement. The modest cyclical expansion underway will not, however, be sufficient to sustain strong gains in standards of living across OECD countries," said OECD Secretary-General Angel Gurria.

Gurria recommended "deeper, sustained and collective commitment to coherent policy packages that support inclusiveness and productivity growth," to ensure that the benefits of economic recovery would be translated into the improvement of people`s standards of living.

"We need a more inclusive, rules-based globalization that works for all, centered on people`s well-being," he added.

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07.06.2017 11:34 World Economy Review - May 2017

The World Bank forecasts that global economic growth will strengthen to 2.7 percent in 2017 as a pickup in manufacturing and trade, rising market confidence, and stabilizing commodity prices allow growth to resume in commodity-exporting emerging market and developing economies.

According to the World Bank`s June 2017 Global Economic Prospects, growth in advanced economies is expected to accelerate to 1.9 percent in 2017, which will also benefit the trading partners of these countries. Global financing conditions remain favorable and commodity prices have stabilized. Against this improving international backdrop, growth in emerging market and developing economies as a whole will pick up to 4.1 percent this year from 3.5 percent in 2016.

Growth among the world`s seven largest emerging market economies is forecast to increase and exceed its long-term average by 2018. Recovering activity in these economies should have significant positive effects for growth in other emerging and developing economies and globally.

Nevertheless, substantial risks cloud the outlook. New trade restrictions could derail the welcome rebound in global trade. Persistent policy uncertainty could dampen confidence and investment. Amid exceptionally low financial market volatility, a sudden market reassessment of policy-related risks or of the pace of advanced-economy monetary policy normalization could provoke financial turbulence. Over the longer term, persistently weak productivity and investment growth could erode long-term growth prospects in emerging market and developing economies that are key to poverty reduction.

"For too long, we`ve seen low growth hold back progress in the fight against poverty, so it is encouraging to see signs that the global economy is gaining firmer footing,” World Bank Group President Jim Yong Kim said. “With a fragile but real recovery now underway, countries should seize this moment to undertake institutional and market reforms that can attract private investment to help sustain growth in the long-term. Countries must also continue to invest in people and build resilience against overlapping challenges, including climate change, conflict, forced displacement, famine, and disease.”

The report highlights concern about mounting debt and deficits among emerging market and developing economies, raising the prospect that an abrupt rise in interest rates or tougher borrowing conditions might be damaging. At the end of 2016, government debt exceeded its 2007 level by more than 10 percentage points of GDP in more than half of emerging market and developing economies and fiscal balances worsened from their 2007 levels by more than 5 percentage points of GDP in one-third of these countries.

“The reassuring news is that trade is recovering,” said World Bank Chief Economist Paul Romer. “The concern is that investment remains weak. In response, we are shifting our priorities for lending toward projects that can spur follow-on investment by the private sector.”

A bright spot in the outlook is a recovery in trade growth to 4 percent after a post-financial crisis low of 2.5 percent last year. The report highlights a key area of weakness in global trade, trade among firms not linked through ownership. Such trade through outsourcing channels has slowed much more sharply than intra-firm trade in recent years. This is a reminder of the importance of a healthy global trading network for the less integrated firms that account for the majority of enterprises.

“After a prolonged slowdown, recent acceleration in activity in some of the largest emerging markets is a welcome development for growth in their regions and for the global economy,” said World Bank Development Economics Prospects Director Ayhan Kose. “Now is the time for emerging market and developing economies to assess their vulnerabilities and strengthen policy buffers against adverse shocks.”

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06.05.2017 13:56 World Economy Review - April 2017

The global economy is expected to grow 3.5 percent this year, the International Monetary Fund (IMF) said in its World Economic Outlook report.

That figure is up from the previous estimate of 3.4 percent as the bank cited "buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade under way”. It kept its 2018 global growth forecast unchanged at 3.6 percent.

There are still risks, however, against the world economy, such as low productivity growth, high income inequality, inward-looking policies in advanced economies, and the U.S.`s Federal Reserve raising rates faster than expected.

Expectations for the U.S. economy were left unchanged at 2.3 percent for 2017 and 2.5 percent for the following year, but the IMF revised upwards its forecast for most major economies.

The eurozone is estimated to expand by 1.7 percent in 2017, instead of 1.6 percent, while Germany, France and Italy were each revised up 0.1 points to 1.6 percent, 1.4 percent, and 0.8 percent, respectively. The U.K. is anticipated to grow 2 percent this year, instead of 1.5 percent.

Japan`s forecast was revised up 0.4 points to 1.2 percent. The Russian economy is expected to expand 1.4 percent this year instead of 1.1 percent, while 2017projections for China was raised to 6.6 percent from 6.5 percent.

Turkey`s economy is expected to contract to 2.5 percent from 2.9 percent, but the bank kept 2018 forecasts unchanged at 3.3 percent.

Turkey`s outlook "is clouded by heightened political uncertainty, security concerns, and the rising burden of foreign-exchange-denominated debt caused by the lira depreciation," the IMF said.

The IMF also warns of headwinds that could weaken its global projections. The organization highlights the possibility of protectionism and what the report calls "trade warfare".

However, the dominant tone of the report is rather sunnier than it has been for some time. For much of the period since the financial crisis of 2008 the IMF has worried that the recovery was failing to generate momentum.

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