Global economy chugs forward as laggards look to become locomotives

WASHINGTON — The world economy looks well on its way to a year of faster, firmer growth after rising at its most rapid pace in two-and-a-half years in the second quarter.

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

“The global economy is in better shape than it has been in several years,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York.

“We just don’t see what would be a trigger for a recession.”

He called it a “Goldilocks” scenario for stock market investors, with the economic recovery solid enough to generate higher corporate profits but not so fast as to lead to a rapid pickup in

inflation and interest rates. The MSCI ACWI Index of stocks from emerging and advanced economies has risen in the past five quarters, its longest stretch of gains since the 2007-08 financial crisis.

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

“Recent data point to the broadest synchronized upswing the world economy has experienced in the last decade,” International Monetary Fund chief economist Maurice Obstfeld wrote in a recent blog post.

“World trade growth has also picked up, with volumes projected to grow faster than global output in the next two years.”

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 euroarea economy is starting to build momentum. The expansion accelerated to 0.6% 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 ( ECB) 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 Mr. Draghi to take his time in scaling back support for the region’s economy. —