In this week’s IDB, we discuss the firm start to 2017 for the global economy and our expectations for the coming year, including the clouds ahead.
A synchronised global economic recovery is underway with the major economies performing well. Both Emerging Markets (EM) and Developed Markets (DM) are growing in a steady manner.
For DM, there is no longer a deflationary fear as they continue to head towards the inflation targets set by central banks. For EM, inflationary pressures are receding and normalising downwards.
US growth remains robust, however due to seasonal patterns, Q1 was again soft due to cautious consumers and weaker exports. We expect a significant bounce back over the rest of the year. The US is experiencing the longest economic expansion since the 1950’s, with indicators suggesting steady job creation and tightening labour markets. Business survey data points to strong growth and consumer confidence levels are robust due to the employment backdrop and housing market. It looks likely the Fed will continue to raise rates and start to normalise its balance sheet before year end.
GDP growth in the Eurozone is steering higher; services, manufacturing and composite Purchasing Manager’s Index (PMI) are now at pre-crisis levels. The labour market also has a positive outlook, with unemployment rates dropping and wage growth edging higher.
While the skies look blue at the moment, the potential clouds ahead include monetary policy tightening, normalising bond market volatility, European politics and a stalling of Trumponomics.