The global economy is getting stronger
Great momentum is building up for the global economy to deliver faster and stronger growth in the coming few years. It is already showing relative strength comparing to the past couple of years. Luckily this economic growth expansion is broadly based. Economies from Japan to Europe are bouncing back from years of timid growth. Hopefully this higher economic growth can be sustained as it is not accompanied by higher inflation.
The global economy is in a much better shape than it has been for several years, helped by low interest rates, falling unemployment and strained wage growth. This has been one of the longest economic cycle that is characterized by steady growth with no risk of slow down or recession. Also, it has been investor friendly, thanks mainly to the action taken by the central banks over the past few years. It is a sort of Goldilocks scenario. Investors are getting rewarded by global economic recovery that is strong enough to generate good corporate profits without added costs. Also, it is not threatening higher interest rates as inflation is still below most central banks official targets.
Based on the latest economic forecasts, the global gross domestic product is projected to increase by 3.4 percent in 2017 and 3.5 percent in 2018. These figures are a bit lower than the estimated 4 percent plus pace in the second quarter of this year but they still represent a clear acceleration from last year’s 3.1 percent advance. The encouraging signs are that the acceleration in the global economic activities are broadly based with coordinated upswing across most advanced economies. Recently, The International Monetary Fund confirmed that world trade growth has picked up, with volumes projected to grow faster than global output in the next two years. The pick-up in global economic growth has been paced by good signs of rebounds in Europe and Japan, the two economies that until now had been drags on the global economy.
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. Strong economic growth has been reported throughout the European Union, from Italy, Spain, Netherlands and France. This is all good and encouraging news for the European Central Bank. It has been patient with its accommodative policies for a while and that has been paying off recently. Inflation or the lack of it is still the only factor that is still causing concern for the European Central bank and some others in the developed economies.
Whereas the Japanese and the European economies are showing good sloid growth, the world biggest and second biggest, the US and China are yet to show strong pick up in their economic activity. I believe it is a matter of time before we see the US and the Chinese economic growth getting strong boost for the strong global economic recovery. US economic statistics and future indicators are pointing at possible growth acceleration in the coming years. US consumers are benefiting from a strong jobs market and healthy balance sheets while companies are enjoying a revival in profits and very low borrowing costs. Concern about the US Federal Reserve raising interest rates in the coming months is way overblown. I don’t think the Federal Reserve chairwomen, Janet Yellen is going to risk the economy at the time when she is going to be replaced shortly. Anyway, she has no strong argument to act aggressively on its tightening policy.
International investors should take comfort from the acceleration in the global economic growth at least for the coming couple of years and be assured that inflation and central banks are on their side when they need them. There is a strong and good foundation to build on for the next couple of years. @Rasameel