Global Economy Reviews

12.01.2018 21:49 World Economy Review - December 2017

The global economy may this year see its fastest growth since 2011, driven mostly by African countries. It will also be its most energy-hungry ever, according to the latest Global Economy Watch (GEW) forecast by PwC.

"Among the 17 countries with a faster economic growth than China will be India, Ghana, Ethiopia and the Philippines, which will lead to a broader growth in Africa and the Asian economies. According to our GEW, of the ten fastest growing economies, eight could be African," said Csaba Polacsek, business advisory partner at PwC Hungary.

PwC released its final Global Economy Watch of 2017, with predictions for 2018. According to a press release sent to the Budapest Business Journal, one of the main findings of the final GEW of last year is that global economic growth may be the fastest since 2011.

PwC says that the global economy will likely grow by almost 4% in purchasing power parity (PPP) terms. More importantly, it stresses, this growth is expected to be broad-based and synchronized, rather than dependent on a few countries.

The main engines of the global economy (the United States, emerging Asia and the Eurozone, which comprised 60% of world GDP in 2017) are expected to contribute almost 70% of economic growth in 2018 in PPP terms, compared to their post-2000 average of around 60%, PwC says.

PwC also expects that this year will be "the beginning of the end of easy money," with the European Central Bank (ECB) likely to further reduce its monthly asset purchases in 2018. Generally, PwC expects monetary policy to somewhat tighten in the G7, reflecting closing output gaps in some advanced economies and stable inflation expectations.

The global economy is on course to consume almost 600 quadrillion British thermal units (BTUs) of energy this year, double its 1980 level and the highest level on record, PwC predicts. India and China together will consume about 30% of global energy, which will be about six times more than the African continent. Reflecting the slow shift towards renewable energy sources, 10% of global energy consumption is expected to be in renewables, with China consuming twice as much renewable energy as the United States, PwC says.

As for oil prices, PwC expects them to remain broadly stable in real terms in 2018. In November, OPEC and its allies agreed to extend the 1.8 million barrels per day (mb/d) supply cut until the end of 2018. Though part of OPEC, Iran was permitted a lower cut, to 10.05 mb/d, as it recovers from nuclear-related sanctions. This is likely to keep oil output growth modest, provided the deal proves viable over time.

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11.12.2017 17:43 World Economy Review - November 2017

The global economy improved in 2017 and will reach an eight-year high next year according to the Organization for Economic Co-operation and Development. But needs private investment to sustain growth into 2019.

The organization nudged up its estimate to 3.6 percent for this year from 3.5 percent in its last forecast to reach 3.7 percent in 2018.

Catherine Mann, OECD Chief Economist, says several factors contributed to the improved economy.

First there has been a continued monetary policy accommodation, she explains. But perhaps some people don`t know that actually there is quite a bit of fiscal stimulus in the system and that is added to the growth. The third element is that trade has recovered and it`s moving along quite smartly right now.

With its strongest growth in a decade, the euro area was also seen outpacing other major developed economies this year and was up on previous forecasts. The OECD forecasts growth of 2.4 percent for 2017 dropping to 2.1 percent in 2018.

There is no question that 2017 is a much better year for the euro area, says Mann. What we would like to do is to ensure that the momentum that is in place right now continues through 2018 and 2019.

But Brexit means Britain is missing out on global growth. The OECD`s 2017 growth forecast of 1.5 percent makes Britain the weakest economy in the G7.

`Well there is uncertainty and there is a timetable for resolution of those uncertainties, says Mann. What we need to do is get to the position of a close economic relationship between the UK and the EU, that is better for both of them.

UK Banks though seem to be ready for the worst case scenario. For the first time since the financial crisis, all of the UK`s biggest lenders have passed the Bank of England stress tests.

Informed by the stress tests at our own risk analysis, the Financial Policy Committee also judges that the banking system can continue to support the real economy even in the unlikely event of a disorderly Brexit, said Bank of England governor, Mark Carney.

But the OECD says high consumer debt coupled with stagnant household income is still a major financial stability risk in the UK.

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10.11.2017 22:29 World Economy Review - October 2017

The Organization of the Petroleum Exporting Countries (OPEC) released the 2017 version of its World Oil Outlook. Perhaps the most interesting projection in the new Outlook calls for an increase in demand for oil of 15.8 million barrels a day between 2016 and 2040.

World demand in 2016 totaled 95.4 million barrels a day and the latest OPEC forecast pushes that to 111.1 barrels a day in 2040. That total comprises a decline of 8.9 million barrels a day in demand from developed (OECD) countries and an increase of 24 million barrels a day in developing countries` demand. China alone will add 6.0 million barrels a day to its demand over the forecast period and India will add 5.9 million barrels a day.

The Outlook also foresees a decline in demand growth: Long term global oil demand growth is forecast to decelerate steadily, falling from an annual average of around 1.3 mb/d during the period 20162020 to only 0.3 mb/d every year between 2035 and 2040. This deceleration is a result of slowing GDP growth, assumed oil price increases, a structural shift of economies towards a more service-oriented structure, efficiency improvements as a result of tightening energy efficiency policies and/or technological improvements, and oil facing strong competition from other energy sources.

Among those other energy sources is electricity as fuel for electric cars. Last summer, Bloomberg New Energy Finance (BNEF) forecast that electric vehicles will account for 54% of global car sales by 2040. BNEF further expects just over a third of all cars on the road in 2040 to be electric. That amounts to 530 million electric vehicles in a global fleet of about 1.56 billion, up from 1.28 billion in 2015.

In OPEC`s Outlook, the cartel reaches a similar number for the EV market by 2040 in what it calls its Sensitivity Case:

Focusing on the penetration of EVs [electric vehicles] in the passenger car segment, an alternative sensitivity has been developed: the Sensitivity Case. In this sensitivity, a more optimistic view is taken on the penetration of EVs with the assumption that annual EV sales reach 80 million by 2040. This would mean that three out of every five cars sold in 2040 would be electric.

Under the assumption that the increasing EV penetration in the passenger car segment in the Sensitivity Case spreads, at least partially, to commercial vehicles, particularly in the medium-duty segment, oil demand in 2040 is reduced by 2.5 mb/d compared to the Reference Case, to total 108.6 mb/d. Moreover, global oil demand is estimated to plateau around this level in the second half of the 2030s.

For OPEC, this Sensitivity Case is, in fact, a worst case scenario if BNEF`s projection turns out to be true. There are about 1.2 million EVs on the world`s roads and highways today, and if there are 530 million by 2040 that yields a compound annual growth rate of more than 27%.

While demand for oil and refined petroleum products for transportation still will be substantial, by 2040 the handwriting could be on the wall. OPEC`s projection of a plateau of 108.6 million barrels a day of demand by the late 2030s implies that there is a cliff somewhere at the other side of that plateau. The only question is how steeply it drops off.

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08.10.2017 12:25 World Economy Review - September 2017

The International Monetary Fund (IMF) is more optimistic about global recovery than in July, while urged countries to take the upswing to carry out reforms to support inclusive and sustainable growth, China`s Xinhua news agency reported.

The long-awaited global recovery is taking root, said IMF Managing Director Christine Lagarde in a speech ahead of the IMF/World Bank annual meetings.

In July, the IMF expected the global economy to grow 3.5 per cent this year and 3.6 per cent in 2018. Lagarde said that nearly 75 per cent of the world is experiencing an upswing the broadest-based acceleration since the start of the decade.

Besides the acceleration in global growth, financial stability is improving as the banking system is more stable and market confidence increases, said Lagarde.

We are seeing some sun break through - but it is not a clear sky, said Lagarde, citing high levels of debt, excessive risk-taking in financial markets, and heightened geopolitical tensions as threats to the global recovery.

Lagarde called on countries to take advantage of the upswing to undertake reforms, such as investing in education, research and development, as well as infrastructure in order to boost productivity and foster inclusive growth.

The IMF research warned that weather impacts may have lasting effects on economies. The report, released at the end of September, points back to the unprecedented rise in global temperatures over the last 40 years and warns that the increasing global temperatures may end up lowering output, particularly in countries with warm climates.

It`s impossible to blame climate change for any individual storm, and much scientific modeling forecasts the effects of climate change to evolve over many years. The weather`s effect on the economy will vary from year to year and quarter to quarter.

But the IMF research predicts that warmer temperatures will eventually lead to agricultural output declines and a reduction in productivity. It also spells out how climate scientists are predicting more intense and destructive storms as the sea surface temperature continues to rise with their analysis suggesting that "the average country would suffer an additional 0.1 percent of per capita output loss every time it is hit by an average tropical cyclone, with smaller states experiencing 0.2 percent greater damage."

Tropical cyclones and hurricanes are one of the most destructive forces of nature, and have cumulatively caused damage of $548 billion worldwide during 2000 to 2014, according to the International Disasters Database.

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08.09.2017 17:15 World Economy Review - August 2017

The world economy looks well on its way to a year of faster, firmer growth after rising at its most rapid pace in 2 1/2 years in the second quarter.

The expansion is broad based as long-time laggards Japan and the euro area perk up. Even more encouraging: The gains look sustainable because they`re not generating much in the way of inflation or other excesses that frequently presage a downturn, economists said.

Global gross domestic product is projected to increase by 3.4 percent in 2017 and 3.5 percent in 2018, according to the median forecast of economists surveyed by Bloomberg. While that would be a come down from an estimated 4 percent plus pace in the second quarter, it would still represent a clear acceleration from last year`s 3.1 percent advance.

The pick-up has been paced by budding rebounds in Europe and Japan, two economies that until now had been seen as drags on the global economy.

After years of lackluster growth, the euro-area economy is starting to build momentum. The expansion accelerated to 0.6 percent in the second quarter, and it`s more evenly spread across the 19-nation region than in the past. The Netherlands posted the strongest data in a decade and Italy, long an slouch in the region, may see the best performance since 2010 this year.

That`s good news for European Central Bank President Mario Draghi, who wants to make sure the recovery is well established before reining in stimulus. Inflation is still undershooting the ECB`s goal and there`s little sign of significant wage gains as yet. That`s allowing Draghi to take his time in scaling back support for the region`s economy.

A 4 percent annualized surge in Japanese GDP in the second quarter put the nation in an unexpected spot: at the top of the growth table among the Group of Seven industrial economies.

The strongest domestic demand in years helped drive Japanese GDP to a sixth consecutive quarter of expansion, elevating hopes for a sustainable recovery in an economy that`s been better known in recent years for tepid inflation and a declining population than beating forecasts.

While the unexpected strength in Europe and Japan is providing fuel for the global upswing, the expansion`s fate ultimately rests on the performance of the world`s two biggest economies, the U.S. and China. And there the omens are favorable.

JPMorgan Chase & Co. this week raised its forecast for U.S. growth in the third quarter to an annualized 2.25 percent from 1.75 percent. The move followed news of an unexpectedly strong rise in retail sales in July. GDP rose 2.6 percent in the second quarter.

Shoppers splurged at Internet retailers, department stores, restaurants and auto dealerships last month, boosting sales by 0.6 percent, the most this year.

Consumers are benefiting from a strong jobs market and healthy balance sheets while companies are enjoying a revival in profits and rock-bottom borrowing costs, he said. At the same time, the risks to the U.S. from abroad have diminished as world growth has strengthened.

Low inflation -- it`s fallen short of forecasts for five straight months -- means there`s little pressure on the Federal Reserve to act forcefully to rein in the recovery, even with unemployment at a 16-year low.

In China, a multi-year slowdown has stabilized, with economists forecasting an expansion of 6.7 percent this year. The IMF increased its estimate for the nation`s average annual growth rate through 2020 -- to 6.4 percent from 6 percent -- while warning that it would come at the cost of rising debt that increases medium-term risks to growth.

Of course, there`s always the chance that something could happen to upset the worldwide expansion, from an outbreak of hostilities between North Korea and the U.S. to a sudden swoon in financial markets as central banks scale back their support.

Yet for now at least, the global economy is on a positive trajectory, said Bloomberg Intelligence Chief Economist Michael McDonough. There`s a pretty good foundation to build on for the next year or so.

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