Monday, December 04,
2017 / 04:25PM /Fitch Ratings
growth momentum remains strong and is likely to be sustained by an increasingly
positive outlook for investment, says Fitch Ratings in its latest Global
Economic Outlook (GEO). World growth is now estimated at 3.2% this year and
indications are that 2018 will be equally robust with growth to edge up to 3.3%
lack of global inflation in the face of positive growth surprises is allowing
exceptionally accommodative global monetary policy settings to co-exist with
strong growth outturns and prospects. However, caution is warranted on how long
this combination can persist. Beyond 2018, it seems highly likely that global
growth will moderate, while monetary policy conditions will tighten," said
Brian Coulton, Fitch's Chief Economist.
advanced economies, financial conditions remain very supportive, the drag from
fiscal policy tightening has gone, and the investment cycle is firming up.
Meanwhile, tight labour markets are bolstering consumer confidence and
household spending. US growth should rise next year in response to tax cuts and
accelerating private investment while better incoming data has led us to revise
up our estimate of 2017 US growth to 2.3% from 2.1%.
growth now looks likely to be sustained at well-above-trend rates for at least
a few more quarters, implying substantially faster growth in 2018 than
previously expected - we have revised next year's forecast to 2.2% from 1.8% as
the recovery proves more powerful and durable than anticipated.
slowdown is likely to be only modest, while the stabilisation in commodity
prices is helping emerging markets (EMs) outside China to continue to recover
from the sharp downturn in 2015. China's economy is likely to slow in 2018, but
the slowdown is expected to be relatively modest with growth easing to 6.4%
from 6.8% this year. EM growth has recovered to an estimated 5.1% in 2017 from
4.3% in 2016.
demand rebound in China, stabilisation in global commodity prices, and recovery
in world trade all played a part. External conditions are likely to remain
favourable for EMs next year and EM growth is expected to edge up to 5.2% in
2018 as recoveries in Russia and Brazil strengthen and India picks up somewhat
after temporary factors dampened growth in 2017.
and credit conditions remain highly accommodative despite recent shifts in the
global monetary policy narrative. Recent rate hikes by the Fed, the Bank of
England (BOE) and the Bank of Canada have been a surprise relative to market
expectations prevailing at the turn of the year but have failed to result in
any significant tightening of global credit conditions.
offsetting factors look to have been particularly important here: the ongoing
easing by the European Central Bank (ECB) is likely having global impact (the
Bank of Japan also continues to expand its balance sheet very aggressively);
medium-term interest rate expectations in the US remain remarkably low and
commercial bank credit standards have eased.
pick-up in GDP growth in the advanced economies looks increasingly likely to
boost investment, where traditional "accelerator" forces on investment
growth will start to be felt as companies strive to expand the capital stock in
response to stronger demand.
investment cycle is stirring. Improvements in business sentiment have become
well-entrenched and there now appears to be a distinct absence of a looming
threat to near-term growth that has dogged financial and business confidence
over the last few years," added Coulton.
improving investment outlook has been the main driver of our upward revision to
eurozone GDP growth in 2018, and we have upgraded our projections for private
investment in the US next year. The UK stands in contrast, with recent business
surveys of investment intentions pointing to weakening investment in the face
of Brexit uncertainties. Nevertheless, UK growth forecasts have been revised up
slightly to 1.6% in 2017 and 1.4% in 2018 on the back of incoming data and a
looser fiscal policy stance.
2018, however, we believe reality checks await. In particular, current growth
in the advanced economies is well above potential, with the implication that
output gaps are closing quickly. This is corroborated by declining unemployment
rates. On the basis of our latest forecasts, output gaps will be in positive
territory across all the advanced countries except the UK by 2019.
allowing for uncertainties in real-time estimates of the output gap, this is
bound to prompt a shift in central bank attitudes towards monetary policy. This
can already be detected in recent moves by the Fed, the Bank of Canada and the
BOE, which have all referenced low unemployment rates and/or diminishing spare
capacity in recent tightening moves.
the potential for further upside to growth, particularly if the private
investment cycle accelerates sharply or fiscal policy is eased more
aggressively than we anticipate, it would inevitably bring with it an elevated
risk of faster monetary policy tightening.
is a risk that could transpire even without stronger growth. Low unemployment
rates and increasing anecdotal reports of labour shortages could result in a
faster-than-expected pick-up in wage inflation. As this would substantially
increase the risk of ongoing increases in CPI inflation, central banks would be
forced to respond.
possibility of a further escalation in Saudi Arabia-Iran tensions could lead to
a sharp rise in oil prices, which would be hard for central banks to ignore in
the context of rapidly diminishing economic slack. Other risks to world growth
include disruptions to global trade, China's medium-term debt challenges and
the risk of a renewed widespread appreciation of the dollar.
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