In this week’s Macro IDB we look at global growth momentum and our predictions for 2017 and 2018.
Global GDP is expected to edge above 3% in 2017, supported by higher cyclical momentum and a significant contribution from Emerging Markets (EM). Trade volumes are picking up which could, in turn, spur global investment. Despite the current spike, inflation is expected to normalise and head lower; core and pipeline (input wages) inflation remain in check.
The US is expected to experience a 2-2.5% increase in GDP, stronger inflation in the short-term, higher fiscal deficit and lengthening of the business cycle over the coming year, as a consequence of President Trump’s pro-growth policy agenda.
European growth is still a reasonable way behind the US, however, growth indicators look promising. Both households and businesses have benefitted from easy ECB (European Central Bank) policy and the credit growth it has encouraged. Consumption underpinned growth in 2016, but this may be adversely impacted by rising inflation and falling real wages. Europe will also continue to face political headwinds from the general elections still to come in 2017.
Other key global risks for 2017/18 include political uncertainty in the US, excessive USD strength and rich asset valuations.