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World Economic Outlook

By: Abdullah Shibli

For 2017 and beyond

The year 2017 can be chalked down as a prosperous one for the world economy. Wherever we live, we welcome the New Year, which, by all indications, we hope, will be a better year in all respects. The most common measures of economic health viz. output, inflation, employment and cost of borrowing, all portend that 2018 might be one of the best in this decade, and perhaps, even since the dawn of this century. 

The change in mood among the forecasters is evident if we compare the state of uncertainty at the beginning of 2017 with the current optimism. The election of President Donald Trump, with his promises of reform and radical change in the global commitments of the United States, including the Paris Climate Accord, NAFTA and TPP, was initially viewed with disquiet. This, along with the expected turmoil as EU and UK began their much-anticipated negotiations over the Brexit pullout, led to a period of “wait and see” in financial and policy circles. Even the International Monetary Fund (IMF) found itself scratching its head as is evident from its July 2017 pronouncement which lowered its forecast for US growth to 2.1 percent for 2017 and 2018 from earlier projections of 2.3 percent and 2.5 percent.

But as soon as it was clear that Wall Street was happy with the moves made by the new administration, there was a surge in business investment, fuelled by executive orders from the Trump administration, robust consumer spending, low interest rates and exports boosted by a weaker dollar. The US economy grew at three percent in the third quarter (July–September) of 2017 and business spending on new equipment went up by an annual rate of 8.65 percent.

IMF soon turned around and raised its estimate for global economic growth in 2017 and 2018, citing stronger expansion in the first half of the year in the Eurozone, Japan, Asia and Russia. Its revised estimates are pointing to the uptick in economic activity that started in the second half of 2016 and “gained further momentum” in the first six months of 2017. “The global upswing in economic activity is strengthening,” and IMF revised upward its growth forecast to 3.6 percent in 2017 and 3.7 percent in 2018, which are both 0.1 percent higher than projections in July 2017.

In the US, the Conference Board, a business research organisation of 2,000 companies, said that its consumer confidence index hit 125.9 in October 2017, up from a revised 120.6 in September that year, and the highest reading since December 2000. The index measures consumers’ assessment of current conditions and their outlook for the next six months. Both rose in October 2017.

However, this optimism is not confined to the US economy only. On November 02, 2017, the Bank of England, Britain’s central bank, hiked its lending rate from a record low of 0.25 percent to 0.5 percent. The Bank had previously lowered the rate in 2016 after the Brexit vote out of fear that the economy would move into a recessionary period given the uncertainty before divorce talks began in March 2017. But, during the first 3 quarters of 2017, consumer spending, one component of GDP, kept the British economy humming even in the face of slower investment. That along with rising cost of imports has led to mounting inflationary pressures and triggered the first increase in the cost of borrowing since 2007 — a move that the Bank of England says was needed to help control pressures on the price level.

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