Global economy gathering pace

With growth of only 2.9 percent in 2016, the global economy experienced its weakest year since the crisis of 2009. But things are now finally heading upwards again. This year, the global economy can be expected to record an even stronger growth rate of 3.2 percent – in spite of all the political uncertainty.

The recovery evident at the moment in almost all regions of the world has taken many observers by surprise. Last year, the unexpected results of the Brexit referendum in the UK and the US presidential elections were a source of considerable concern. This year, yet more political decisions are on the agenda, above all in Europe, all of which are being anticipated with unease.

At the top of the list of these uncertainties are the parliamentary elections in the Netherlands and the presidential election in France. In both countries, forces hostile to Europe are currently recording high readings in the popularity polls. There is a distinct risk that these forces could gain control of the governments. In Italy, new elections could also be called in 2017 and here, too, a euro-critical movement („5 Star“) is gaining in popularity. And finally elections are to be held in Germany in September. Here, however, the risk of the anti-EU populists gaining power is the lowest.

Yet so far none of these uncertainties have had any impact whatsoever on the global economy. On the contrary: for nearly half a year, the global leading indicators, including the important commodity prices, have been signalling signs of recovery. Prices for non-ferrous metals and oil have strengthened noticeably. Prices for metals, in particular, are traditionally closely connected to the development of global industrial production.

The most important contributions to the global economic recovery are deriving this year from North and South America. The expected growth acceleration in the USA alone will account for nearly one third of the global economic recovery. The growth contribution of Latin America that was still mired in a deep recession last year, should also be greater in 2017. In Brazil we expect the economic contraction process to come to an end and in Argentina we forecast a return to positive growth rates.

On the other hand, Europe and China will not belong to the regions of the world likely to experience a growth acceleration this year. The growth deceleration in China will most likely continue burdening global economic development both this year and next. However, among the group of developing countries the positive effects of the stabilising Russian economy should be felt very strongly.

In many countries, a more expansionary course of fiscal policy is currently playing an important role in brightening the economic outlook. In the United States, the expected fiscal stimulus is an important argument for the more optimistic economic forecasts. In Europe, a somewhat more expansionary fiscal policy will merely serve in most countries to prevent growth from weakening even more strongly this year. And in China, too, the growth rates would probably decline even further if the government had not shifted over to a more expansionary spending drive some months earlier.

The recovery in commodity prices plays a key stabilising role for many emerging markets. Russia is profiting from the higher oil price as are many other oil exporting countries. The major economies of Latin America are also greatly dependent on global commodity prices. For them, the renewed increase in prices for agricultural commodities is of very great importance.

The global economic prospects are therefore improving at the moment. However this is unlikely to be accompanied by a parallel acceleration in price increases. In the industrialised countries, visibly higher inflation rates are only expected again this year compared with 2015 and 2016 in connection with the oil price increase. But these generally fail to reach the frequently-cited warning marks of the central banks. The average inflation rate of the industrialised countries should reach 1.8 percent in 2017.

There are hardly any signs of other inflation drivers at the moment. Price pressure is also not deriving from the wage front in the important countries either. The aggregate economic capacities are well-utilised in many countries at the moment, but in hardly any country can signs of over-utilisation be noted that might lead to a wage-price spiral. Even in the USA, the production gap is currently only slightly positive, so that a visible, scarcity-induced acceleration in wage pressure is also unlikely here this year.

In the emerging markets, the average inflation rate of some 5 percent exceeds by far that of the industrialised countries. But for some years now inflation rates could be seen trending downwards here rather than upwards.

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