Global Economy Reviews

07.08.2017 16:15 World Economy Review - July 2017

The National Institute of Economic and Social Research have revised forecasts for world GDP growth in 2017 upward as several major economies exceed expectations for the year.

Global growth has been revised to 3.6% by the NIESR, while it has maintained its 2018 and long-term projections of 3.6% and 3.4% respectively.

In the report released by the research institute, strong performances from the Euro Area and Japan in particular drove the 2017 forecast higher.

Both areas have seen super-low interest rates in recent months and years, with the NIESR pointing towards this as a factor in their economic growth.

“Recent data for several major economies point to a more significant pick-up in global growth this year than we projected in May. Among the advanced economies, the upward revisions have been most marked for the Euro Area and Japan,” the report said.

“The improvement in growth performance seems due partly to the highly accommodative monetary policies of recent years but also to a turnaround in the stance of fiscal policies since 2015.”

A lessening of political instability in Europe was also referenced as a major reason behind the revision of the forecast, but the NIESR added it was still at the risk of further weakness owing to political events.

“In the euro area, political uncertainty has been reduced by the French elections, but risks of financial instability remain, especially with an incomplete banking union. More broadly, economic recovery remains fragile and could be derailed by policy mistakes.”

According to the report, lower-than-expected inflation across major economies presents a unique dilemma for central banks as they seek to maintain sustainable growth.

“Past relationships both between unemployment and inflation, and between interest rates and demand, seem unreliable,” it said.

“Economic recoveries are fragile, the costs of any renewed weakness are potentially high, and consistently below-target inflation in recent years jeopardizes the credibility of the symmetry of inflation targets.”

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09.07.2017 13:17 World Economy Review - June 2017

In its latest economic outlook, the Organization for Economic and Cooperation Development (OECD) projected accelerated global growth for the 2017-2018 period, saying "greater efforts are needed to ensure that the benefits from growth and globalization are more widely shared."

Updating its last estimate issued on March, the Paris-based think-tank saw global growth in 2017 at 3.5 percent, up by 0.2 percentage. The figure was set to accelerate to 3.6 percent in 2018 due to "stronger business and consumer confidence, rising industrial production and recovering employment and trade flow."

"Among the major advanced economies, the recovery will continue in the United States," the organization estimated.

However, it revised down its gross domestic product (GDP) forecast this year to 2.1 percent this year and 2.4 percent next year from previous estimates of 2.4 percent and 2.8 percent respectively.

The organization report showed a steady outlook for the euro area at 1.8 percent over the period while that of Japan would increase to 1.4 percent this year before slowing to 1.0 percent in 2018.

In China, growth is expected to slow to 6.6 percent in 2017 and 6.4 percent the following year in 2018, according to the OECD data.

"After five years of weak growth, there are signs of improvement. The modest cyclical expansion underway will not, however, be sufficient to sustain strong gains in standards of living across OECD countries," said OECD Secretary-General Angel Gurria.

Gurria recommended "deeper, sustained and collective commitment to coherent policy packages that support inclusiveness and productivity growth," to ensure that the benefits of economic recovery would be translated into the improvement of people`s standards of living.

"We need a more inclusive, rules-based globalization that works for all, centered on people`s well-being," he added.

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07.06.2017 11:34 World Economy Review - May 2017

The World Bank forecasts that global economic growth will strengthen to 2.7 percent in 2017 as a pickup in manufacturing and trade, rising market confidence, and stabilizing commodity prices allow growth to resume in commodity-exporting emerging market and developing economies.

According to the World Bank`s June 2017 Global Economic Prospects, growth in advanced economies is expected to accelerate to 1.9 percent in 2017, which will also benefit the trading partners of these countries. Global financing conditions remain favorable and commodity prices have stabilized. Against this improving international backdrop, growth in emerging market and developing economies as a whole will pick up to 4.1 percent this year from 3.5 percent in 2016.

Growth among the world`s seven largest emerging market economies is forecast to increase and exceed its long-term average by 2018. Recovering activity in these economies should have significant positive effects for growth in other emerging and developing economies and globally.

Nevertheless, substantial risks cloud the outlook. New trade restrictions could derail the welcome rebound in global trade. Persistent policy uncertainty could dampen confidence and investment. Amid exceptionally low financial market volatility, a sudden market reassessment of policy-related risks or of the pace of advanced-economy monetary policy normalization could provoke financial turbulence. Over the longer term, persistently weak productivity and investment growth could erode long-term growth prospects in emerging market and developing economies that are key to poverty reduction.

"For too long, we`ve seen low growth hold back progress in the fight against poverty, so it is encouraging to see signs that the global economy is gaining firmer footing,” World Bank Group President Jim Yong Kim said. “With a fragile but real recovery now underway, countries should seize this moment to undertake institutional and market reforms that can attract private investment to help sustain growth in the long-term. Countries must also continue to invest in people and build resilience against overlapping challenges, including climate change, conflict, forced displacement, famine, and disease.”

The report highlights concern about mounting debt and deficits among emerging market and developing economies, raising the prospect that an abrupt rise in interest rates or tougher borrowing conditions might be damaging. At the end of 2016, government debt exceeded its 2007 level by more than 10 percentage points of GDP in more than half of emerging market and developing economies and fiscal balances worsened from their 2007 levels by more than 5 percentage points of GDP in one-third of these countries.

“The reassuring news is that trade is recovering,” said World Bank Chief Economist Paul Romer. “The concern is that investment remains weak. In response, we are shifting our priorities for lending toward projects that can spur follow-on investment by the private sector.”

A bright spot in the outlook is a recovery in trade growth to 4 percent after a post-financial crisis low of 2.5 percent last year. The report highlights a key area of weakness in global trade, trade among firms not linked through ownership. Such trade through outsourcing channels has slowed much more sharply than intra-firm trade in recent years. This is a reminder of the importance of a healthy global trading network for the less integrated firms that account for the majority of enterprises.

“After a prolonged slowdown, recent acceleration in activity in some of the largest emerging markets is a welcome development for growth in their regions and for the global economy,” said World Bank Development Economics Prospects Director Ayhan Kose. “Now is the time for emerging market and developing economies to assess their vulnerabilities and strengthen policy buffers against adverse shocks.”

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06.05.2017 13:56 World Economy Review - April 2017

The global economy is expected to grow 3.5 percent this year, the International Monetary Fund (IMF) said in its World Economic Outlook report.

That figure is up from the previous estimate of 3.4 percent as the bank cited "buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade under way”. It kept its 2018 global growth forecast unchanged at 3.6 percent.

There are still risks, however, against the world economy, such as low productivity growth, high income inequality, inward-looking policies in advanced economies, and the U.S.`s Federal Reserve raising rates faster than expected.

Expectations for the U.S. economy were left unchanged at 2.3 percent for 2017 and 2.5 percent for the following year, but the IMF revised upwards its forecast for most major economies.

The eurozone is estimated to expand by 1.7 percent in 2017, instead of 1.6 percent, while Germany, France and Italy were each revised up 0.1 points to 1.6 percent, 1.4 percent, and 0.8 percent, respectively. The U.K. is anticipated to grow 2 percent this year, instead of 1.5 percent.

Japan`s forecast was revised up 0.4 points to 1.2 percent. The Russian economy is expected to expand 1.4 percent this year instead of 1.1 percent, while 2017projections for China was raised to 6.6 percent from 6.5 percent.

Turkey`s economy is expected to contract to 2.5 percent from 2.9 percent, but the bank kept 2018 forecasts unchanged at 3.3 percent.

Turkey`s outlook "is clouded by heightened political uncertainty, security concerns, and the rising burden of foreign-exchange-denominated debt caused by the lira depreciation," the IMF said.

The IMF also warns of headwinds that could weaken its global projections. The organization highlights the possibility of protectionism and what the report calls "trade warfare".

However, the dominant tone of the report is rather sunnier than it has been for some time. For much of the period since the financial crisis of 2008 the IMF has worried that the recovery was failing to generate momentum.

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09.04.2017 12:46 World Economy Review - March 2017

Global debt rose to 325 per cent of the world`s gross domestic product (GDP) in 2016, totaling $215 trillion (172.39 trillion pounds), an Institute for International Finance (IIF) report showed, boosted by the rapid growth of issuance in emerging markets.

Global debt grew by $7.6 trillion in 2016 compared with the prior year. Issuance rose from 320 per cent of GDP in 2015.

Emerging market debt saw a "spectacular rise" to $55 trillion outstanding in 2016, equal to 215 per cent of their GDP. This was driven mostly by non-financial corporate debt, the report said.

Emerging markets have raised nearly $40 trillion of new debt between 2006 and 2016, a significant acceleration from the roughly $9 trillion added between 1996 and 2006, according to the report.

Global debt has risen more than $70 trillion in the last decade to a record high for debt issuance, the institute said.

Developed market countries accounted for $160 trillion, the lion`s share of global debt, reaching nearly four times, or 390 per cent of those markets` combined GDP.

The report found that the $32 trillion increase in developed market debt had been driven largely by governments, with the US and UK public sector debt having more than doubled since 2006. Japan and developed markets in Europe have seen an increase of about 50 per cent in the dollar value of their outstanding government debt.

The majority of the increase in emerging market indebtedness has been in local currency, which was more than $48.5 trillion as of the end of 2016 from around $43 trillion in 2015.

The world is racking up a record level of debt, much of it driven by emerging markets. But with interest rates in the U.S. heading up, the excessive reliance on easy money to drive economic growth can backfire on countries that depend on money flows from abroad.

The global debt pile has climbed to $215 trillion in 2016, an increase of $70 trillion from a decade ago, according to a report published Monday by the International Institute of Finance.

Once minor players in global lending markets, developing-market nations have benefited from international investors willing to invest in assets from markets perceived as riskier in search of relatively richer returns, or income, as ultralow and subzero interest rates from quantitative easing snatched away easy returns from safe assets like U.S. Treasurys.

The published findings confirms worries that the global economy has binged on debt, even if the usual suspects may have changed. Most of the recent concern among investors over growing debt levels has been targeted toward the high-income countries of the West.

The U.S. has continued to bump against the debt ceiling, raising concerns that it will no longer have the economic or political wherewithal to pay back the interest and principal on its debt. Greece has struggled to pay its creditors, and Italy is trying to bail out its big banks saddled with bad loans.

In fact, much of this precipitous rise has come from emerging markets. In the past decade, emerging markets have issued $40 trillion of additional debt.

“Higher domestic rates and a stronger U.S. dollar pose headwinds for those emerging markets with a debt-driven growth model,” wrote the authors of the report, titled “Eye-watering rise in debt levels.”

A tightening interest-rate cycle in the U.S. can result in a pull-back in portfolio flows, sparking a credit crunch. And a rising U.S. currency can make it more expensive for overseas borrowers to pay back investors in dollars when the money earned to pay back the interest is denominated in a weakening currency.

Particularly worrying is the rapid growth in corporate credit. Principal culprits of the boom in corporate lending include China, Turkey and Saudi Arabia. Bonds from such issuers have already been hit by a combination of slowing growth, heightening political turmoil and dipping energy prices.

Though an accumulating debt mound can trouble investors concerned over possible defaults, the credit profile for emerging markets has improved as corporate credit grades have recovered since the first half of 2016, according to an average of S&P`s, Moody`s and Fitch`s ratings compiled by Bloomberg.

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