Deloitte Global Economic Outlook Q2 2017: Now available

The second quarter of 2017 starts with significant political instability in the world. Elections held in various European countries, conflicts in the Middle East, tensions on the Korean peninsula, and uncertainty surrounding the US trade policy have led to a high degree of financial market volatility. And yet relatively benign state of the global economy suggests that there needn’t be too much worry. Growth has been registered in the United States, Europe, Japan and many other emerging countries. The Chinese economy is no longer slowing down. In this issue of Global Economic Outlook, the far-flung economists examine the state of the world economy, looking at both economic and political issues and the manner in which they interact.

First, Patricia Buckley argues that in the United States, a tight labour market is generating the biggest wage growth since the last recession. She also notes that unless the productivity growth picks up, wage gains will perhaps lead to an acceleration in the inflation rate. Lastly, she points out the different kinds of policies that might boost the productivity growth, including infrastructure investment, tax reform, and deregulation.

In the second article, Alexander Börsch looks at the current paradox of the Eurozone, where economic growth is accelerating but political risk is still high. Börsch wonders how long the two can go hand in hand. He points out that rising risks have not been very noticeable in the behaviour of financial markets, which continued to dwell on better growth, rising employment and possibly the disappearance of deflation. On the other hand, political risks cannot be overlooked. Two of the biggest threats involve Brexit and the increase of populist parties in the Eurozone.

Next, Dr Ira Kalish looks at the Chinese economy which is growing at a favourable pace and appears to be stabilizing after a period of deceleration. Yet the remains that too much of that growth stems from investments, many of which are not generating positive returns and pose a risk due to the rapid rise of debt. Additionally, Dr Kalish looks at China’s labour market competitiveness as well as shifting demographics, both of which will play a role in China’s future growth.

In the fourth article discussing the Japanese economy, Dr Ira Kalish believes that this economy doing better. Exports, in particular, are playing a role in reviving growth, considering the suppressed value of the yen. However, the domestic demand continues to be weak. Moreover, the Japanese business is worried due to heavy investments done in the UK as part of a gateway to Europe, but now Brexit poses a sizable risk to that investment.

In Rumki Majumdar article on India, she comments that the Indian economy is lately doing better than expected. The expectations were low due to the recent demonetization. Rumki says that this reflects favourable monetary and fiscal policy responses to the monetary crisis.

Russia’s economy is the topic of Lester Gunnion’s article. Lester notes that Russia is doing much better than twelve months ago, mainly due to the external factors. Oil prices are up, not only boosting the revenue but also helping to stabilize the ruble. This has allowed an easing of the monetary policy. On the other hand, economic sanctions will stymie growth. Furthermore, the excessive dependence on exports of hydrocarbons poses a continued risk to the country’s economy.

In the next article, Akrur Barua examines Brazil, an economy which faced “a staggering reversal of fortune” after a period of time during which the global observers expected much more from the country’s economy. Yet the good news is that the decrease in inflation has allowed the central bank to ease the monetary policy. Additionally, the government appears determined to fix the fiscal policy in a way that ought to boost growth.

Daniel Bachman examines the Canadian economy in the next article. He points out the improvement in the economy’s performance but also focuses on the risk of a change in trade relations with the United States. Various issues are surrounding the Free trade Agreement which had a significant impact on the structure of the Canadian economy.

The African economic issues are analysed, Martyn Davies and Hannah Edinger of Deloitte’s African firm. This article discusses how the Africa’s improved performance in the past decade has generated a global interest, but also points out the diverse performance across the countries. They discuss the role of commodities, privatisation, diversification and China in determining the current and future prospects.

Finally, Arkrur Barua offers an article on inflation in both developed and emerging countries. He notes that inflation is finally starting to rise in the developed world after a long period of weakness. Nevertheless, he also notes the rebound in oil prices and suggests that underlying inflation is likely to remain subdued. This suggests that monetary policy is not likely to offer many surprises. The US Federal Reserve is expected to engage in gradual tightening, while central banks from the Eurozone and Japan are expected to remain focused on avoiding deflation. In emerging countries, the stability of currencies has allowed for lower inflation, therefore enabling central banks to ease policy.