IHS Markit: The global outlook continues to brighten

World Flash | February 2017

The global economic outlook continues to brighten a little, notwithstanding still-elevated levels of policy and political uncertainties. World real GDP growth is projected to pick up from 2.5% in 2016 to 2.9% in 2017 and 3.1% in 2018. Improved outlooks for the Eurozone, United Kingdom, and Russia overshadow a weaker outlook for India. While the most likely global outcome is one of modestly strengthening growth, the probability of either a significantly better or worse outcome remains higher than normal and depends crucially on the policies pursued, especially in the United States and Europe.

United States: Multiple tailwinds point to stronger growth in 2017. The US economy is enjoying multiple tailwinds at the outset of 2017: a sharp rebound in energy-sector capital spending, strength in the single-family housing market, a pickup in nondefense capital goods, strong momentum in employment growth, and signs of rising price inflation. One mild headwind is an inventory correction in the first half of the year. With consumer spending advancing at a decent pace and residential and nonresidential investment showing signs of life, IHS Global Insight predicts real GDP growth of 2.3% this year. In 2018, there is likely to be a pickup in the pace of the recovery, as the expected fiscal stimulus kicks in.

Europe: Growth momentum disappoints. Eurozone GDP growth in the fourth quarter of 2016 was revised down to 0.4% quarter on quarter (q/q), from the preliminary “flash” estimate of 0.5% q/q. It is apparent that growth was domestic-demand led, with consumer spending playing a key role and investment picking up. Whereas recent data point to the Eurozone starting off 2017 on a firm footing, we suspect the economy will struggle to accelerate, amid appreciable political uncertainties during 2017 and reduced consumer purchasing power due to higher inflation. UK economic growth is expected to slow because of a likely contentious Brexit process.

China: Signs that growth has steadied. China’s economic conditions largely stabilized in the second half of 2016. For the full year, China’s economy grew 6.7% in 2017, the sixth consecutive year of deceleration. Two major factors supported the Chinese economy’s stabilization in the second half of 2016—a rebound in commodities markets and accelerating credit growth. Liquidity conditions also improved. Monetary easing, however, has not helped reinvigorate investment growth, which has slowed in the past year.

Other large emerging markets: The outlook has become progressively brighter. India’s economy appears to be stabilizing after taking a hard hit from the government’s 9 November demonetization. Consumer sentiment regarding the future remains upbeat, suggesting spending may recover relatively soon after currency restocking. Meanwhile, Brazil’s economy continues to struggle. Yet, businesses remain hopeful that conditions will improve in 2017. IHS Global Insight forecasts stabilization of the economy in the first half of 2017. Russia’s economic recovery appears to be gaining traction in early 2017, thanks to rising commodity prices.

Bottom line: The good news is with every passing month the global outlook improves a little. The bad news is during the past few months the uncertainty around the outlook has increased.