The Forward View – Global: February 2017

Brighter signs suggest moderate global reflation continues

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  • Business surveys and measures tracking the volume of activity suggest that the global economic upturn lifted a notch toward the end of last year and that trend seems to have continued into early 2017. After years of worrying about sub-target inflation or deflation, there are finally a few signs that price pressures are returning, but only mildly.
  • Having worked for years to generate this upturn, the authorities should be reluctant to nip it in the bud and avoid tough budgetary measures or premature monetary tightening. We have probably seen monetary policy about as loose as it gets this cycle but rates look set to stay low by historical standards for a long time to come.
  • We expect a moderate upturn in global growth that takes it back to its long-term trend level by 2018. China and India are still big drivers of global growth but there is also an important forecast lift in the US as President Trump’s fiscal agenda is pursued.
  • One big risk hanging over this predicted upturn is that political events and policy U-turns see markets turn risk averse and business confidence erode. We have already seen Brexit, what trade measures the US will adopt remain unclear and the French Presidential elections loom as an important test that could upset the markets and slow the pace of global growth.

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