Global Economic Situation and Outlook at the Start of 2018
31 Pages Posted: 26 Jul 2018
Date Written: April 5, 2018
After two consecutive years of slowing global activity, there was a rise in world GDP growth in 2017 which was widespread across advanced and emerging market economies and was higher than expected at the start of the year. Inflation rose moderately in 2017, largely due to increases in commodity prices, but core inflation remained more stable and far from central bank targets.
The outlook for 2018 indicates that these global trends will continue. Some of the factors that will influence these developments are analysed in detail in this article. First, several factors (the cyclical recovery, progress in deleveraging, fiscal changes and higher wages) indicate that the momentum of investment recorded in advanced economies in 2017 will continue in the short term, however, over a longer time frame, whether this strength is maintained will hinge on real interest rate developments, technological factors and resistance to the threat of protectionism. Second, the expected change in the macroeconomic policy mix in the United States and other advanced economies towards a more expansionary fiscal policy and a less loose monetary policy may raise short-term growth but, if they are not gauged properly, bouts of instability in international financial markets could ensue. Lastly, global financial conditions remain favourable. However, the turmoil on US equity markets early in 2018 which spread swiftly and vigorously to other stock markets seems to indicate less favourable global financial conditions in the future and, at the same time, warns against the risks associated with a sharp adjustment in international financial markets.
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