Global economy on road to recovery

The global economy is gaining momentum. In 2016, the global growth level was at its weakest since the crisis in 2009, at just 2.9%. At 3.2%, global economic output had been expected to be over a quarter of a percentage point higher and therefore in line with the average pace of expansion experienced between the years of 2012 and 2015.

For around half a year, early indicators have been signalling that the world economy is in on the road to recovery. In this regard, our own “Global Early Indicator”, which is based on leading economic data sets from the most important regions of the world and demonstrates a relatively close correlation with actual global economic development, has risen strongly again since September 2016. Previously, the indicator had hardly moved more than sideways for around a year.

Commodities prices also have an important indicative function for the global economy. Particularly the prices for non-ferrous metals tend to be closely correlated to global industrial production. However, the oil price is also affected by economic fluctuations in terms of global demand. For a few months now the global market prices for copper, Brent crude and agricultural commodities have risen quite steeply.

In terms of regional developments, the most important contributions to the global economic recovery are expected to come from North and South America. In 2017 alone, nearly one-third of the global economic improvement will be attributable to the anticipated growth acceleration in the USA.

Even more significant is the contribution of Latin America to global growth. Last year, this region was still deeply mired in a recession. For 2017, we at least expect an end to the recession in Brazil, whereas for Argentina we expect a return to positive growth rates. Although Mexico’s economy will probably suffer from its conflict with the new U.S. government and Venezuela’s economy is likely to continue bottoming-out, Latin America as a whole is expected to achieve a turnaround this year. Among the remaining emerging countries, above all the stabilisation of the Russian economy is set to deliver positive news. However, the trend towards a slowdown of growth in China is likely to put the brakes on the global economy in both this and next year.

In many countries, a more expansionary monetary policy is currently playing an important role in brightening economic outlooks. In China, growth rates would have fallen even more substantially, had the government not switched course to a more expansionary public spending strategy a few months ago. In the USA, the expected fiscal impulses support somewhat more optimistic economic forecasts and are certainly a key reason for the very positive sentiment indicators at the moment. And in the majority of European countries, monetary policies which are slightly more expansionary in nature will prevent growth falling even more sharply this year.

In addition, the recovery in commodities prices certainly plays an important stabilising role, particularly for emerging markets. Russia stands to benefit from the rising oil price just as much as other countries which export oil. The large economies of Latin America are also highly dependent on global commodities prices. For them prices for agricultural commodities are of particular importance.

The global economic forecasts are therefore currently improving again, although it should be pointed out that a rapid acceleration of price increases is not yet expected. Compared to 2015 and 2016, significantly higher inflation rates are expected this year in industrialised countries again – principally due to the price of oil. However, they do not usually reach the warning levels often quoted by central banks. On average, rates of inflation in industrialised countries will be around 1.8% in 2017.

The current rise in inflation above all reflects the recovery in the oil price. While at the beginning of 2016, oil prices were occasionally trading below the USD 30 mark, by the start of 2017 this had once again risen to above USD 50. This increase had a trickle-down effect on energy and general consumer prices around the world. Inflation rates are therefore on the rise again, particularly in industrialised countries. However, this rise will not continue in the long term, with falling inflation rates expected later on in the year.

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