The cyclical upswing underway since mid-2016 has continued to strengthen the last year, and the World Bank estimates global GDP growth to have picked up from 2.4 percent in 2016 to 3.0 percent in 2017. This upturn represents the broadest synchronized global growth since a 2010 rebound in the aftermath of the financial crisis. 

Growing investment levels, a turnaround in inventories and improving external demand helped lift advanced economies to 2.3 percent, as the United States, Japan and the Euro Area all accelerated. 

Growth among emerging market and developing economies (EMDEs) is estimated to have strengthened to 4.3 percent last year as some of the worst-hit economies emerged from recession, with a firming commodity market and solid growth among commodity importers paving way.

While worries about overheating in the medium term are increasing, the stage is set for global growth edging up in 2018 as the cyclical momentum continues.

While growth is assumed to be relatively steady, this masks marked differences between advanced economies and the rest of the world, and the fact the composition of growth is likely to change. 

Economies

US economy accelerates further. After starting last year with a lacklustre first quarter, the US economy accelerated strongly and posted GDP growth of 2.3 percent in 2017, well above the 1.5% a year prior.  Barring major additional policy changes, the World Bank sees momentum carrying into this year and lifting the US another 2.5 percent in 2018, with consumer spending growth remaining the principal driving force.

Eurozone momentum moderates. The Eurozone’s expansion accelerated from 1.8 in 2016 to a preliminary 2.5 percent last year, with broad-based improvement across the area taking growth to the highest level since 2007. The cyclical upturn is projected to extend into 2018, but growth is expected to ease back to 2.1 percent as the stimulus policy that fuelled recent growth is gradually unwound.

Chinese growth edges down. China’s GDP growth is expected to have nudged up from 6.7 percent to reach 6.8 percent in 2017, as governmental stimulus and recovering exports helped balance the effects of the ongoing structural supply side reform. Together with a financial regulatory tightening and the anti-pollution campaign, the rebalancing away from state-led investment will continue to put pressure on investment growth and take GDP growth down to an estimated 6.4 percent in 2018.

Japan’s growth spur halts. The long-running Japanese expansion is estimated to have doubled to 1.8 percent in 2017, as strong exports worked in tandem with stimulus-fuelled domestic demand. With both external and Japanese demand moderating, the World Bank sees growth slowing to 1.3 percent in 2018.

EMDEs sustains. Growth in emerging market and developing economies is forecasted to arrive at 4.3 percent in 2017, as the emergence from recessions in principal contributors like Russia and Brazil lifted the expansion from the meagre 3.7 percent of 2016. The acceleration is expected to continue to 4.5 percent in the coming year, reflecting a further pickup of growth among commodity exporters.  

Business and markets

Trade recovery continues. After years of pronounced weakness, global trade gathered solid momentum last year.  A cyclical rebound in investments paved the way for a synchronised recovery in import demand among advanced and EMDEs alike. The pickup in trade is expected to continue in 2018, but while the number of protectionist measures introduced stabilised last year, upcoming renegotiation of free trade agreements and an uptick in measures represent a major concern.

Commodity markets stabilise. Output prudency helped lift oil prices significantly in the second half of the year, and prices are expected to stabilise around the 60 USD/bbl mark in the coming year, retracing from year-end levels, but above last year’s average. Metal prices extended the good run from 2016 at a somewhat more modest pace in 2017, and base metals are expected to only edge up as Chinese demands softens in the coming year.  Global stocks-to-use ratios at multi-year highs continued to weigh heavily on agriculture prices throughout the year, and only a supply disruption is believed to relieve the situation in the near-term.

Monetary conditions tighten. Financial markets went from strength to strength in 2017, thanks to solid economic growth and historically accommodative financing conditions. A monetary policy normalisation on both sides of the Atlantic is underway, but bond yields in both the US and the Euro Area remained low until fears of rapidly increasing US inflation and interest rate hikes manifested globally in early February of this year. Anxiety about inflation and the expected transition to tightening monetary conditions could prove challenging for investors and policymakers alike.  

Sources

  • Eurostat, GDP up by 0.6% in both the euro area and the EU28, January 2018
  • U.S. Department of Commerce, Bureau Of Economic Analysis, National Income and Product Accounts - Gross Domestic Product: Fourth Quarter and Annual 2017 (Advance Estimate), January 2018
  • World Bank, Global Economic Prospects, January 2018: Broad-Based Upturn, but for How Long?, January 2018
  • IHS Markit, Could the global economy overheat in 2018 or 2019?, January 2018
  • International Monetary Fund, World Economic Outlook Update, January 2018
  • Financial data and analytics provider FactSet, January 2018