December 14, 2016

The Forward View – Global: December 2016

Monthly business survey readings provide the most up to date measure of the pulse of global economic growth, they have been improving in the months leading up to November.

Brighter signs reinforce forecasts for continued moderate growth

  • While growth remains sub-trend, the global economy has also proved resilient. Output has continued to grow, despite a series of financial and political shocks this year. However, 2016’s growth has been concentrated into just three countries –the US, China and India – and that looks set to persist due to solid expansion in domestic spending in all three economies.
  • Central banks appear increasingly convinced that they should be nearing their maximum dose of monetary stimulus to get inflation back towards trend. Monetary policy in the big advanced economies is shifting toward gradual rate rises (in the US), cutbacks in asset buying (Euro-zone) or more of the same, rather than yet more stimulus (UK, Japan). Global long bond yields are already turning up and the $US should appreciate further as markets digest the change in US economic policy.
  • The main risks around our view that global growth should modestly accelerate from 2016’s 3% to 3¼% in the following two years come from the high debt burdens hanging over key economies alongside further political uncertainty, particularly next year’s Euro-zone elections, where electoral upsets could see sharp policy reversals that would unsettle markets.

For further details, please see the attached document.

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