In today's barrage of macro data, moments ago the IMF released its latest World Economic Outlook report, in which it now sees the global economy accelerating in broad-based expansion this year, even as it cites shifts to protectionism as a threat, and cuts its outlook to 2018 global trade.
- U.S. 2017 growth est. unch at 2.3%; 2018 est. stays 2.5% as per the January forecast
- China growth est. boosted to 6.6% for this year vs 6.5% in January
- Japan’s 2017 growth forecast raised to 1.2% vs 0.8% est. in January
- U.K. 2017 growth est. jumps to 2% vs 1.5% in January
- Saudi Arabia 2018 growth estimate cut to 1.3%, from 3.2% in January
- Euro-area growth projection for 2017 edges higher to 1.7% vs 1.6% forecast in January
- IMF raises Russia GDP growth forecast for 2017 to 1.4%, leaves Brazil’s unch at 0.2%
Summary from the report:
Global economic activity is picking up with a long-awaited cyclical recovery in investment, manufacturing, and trade. World growth is expected to rise from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018, slightly above the October 2016 World Economic Outlook (WEO) forecast. Stronger activity and expectations of more robust global demand, coupled with agreed restrictions on oil supply, have helped commodity prices recover from their troughs in early 2016. Higher commodity prices have provided some relief to commodity exporters and helped lift global headline inflation and reduce deflationary pressures. Financial markets are buoyant and expect continued policy support in China and fiscal expansion and deregulation in the United States. If confidence and market sentiment remain strong, short-term growth could indeed surprise on the upside.
But these positive developments should not distract from binding structural impediments to a stronger recovery and a balance of risks that remains tilted to the downside, especially over the medium term. Structural problems—such as low productivity growth and high income inequality— are likely to persist. Inward-looking policies threaten global economic integration and the cooperative global economic order, which have served the world economy, especially emerging market and developing economies, well. A faster-than-expected pace of interest rate hikes in the United States could tighten financial conditions elsewhere, with potential further U.S. dollar appreciation straining emerging market economies with exchange rate pegs to the dollar or with material balance sheet mismatches. More generally, a reversal in market sentiment and confidence could tighten financial conditions and exacerbate existing vulnerabilities in a number of emerging market economies, including China—which faces the daunting challenge of reducing its reliance on credit growth. A dilution of financial regulation may lead to stronger near-term growth but may imperil global financial stability and raise the risk of costly financial crises down the road. In addition, the threat of deepening geopolitical tensions persists, especially in the Middle East and North Africa.
Against this backdrop, economic policies have an important role to play in staving off downside risks and securing the recovery, as stressed in previous WEOs. On the domestic front, policies should support demand and balance sheet repair where necessary and feasible; boost productivity through structural reforms, well-targeted infrastructure spending, and other supply-friendly fiscal policy measures; and support those displaced by structural transformations, such as technological change and globalization. Credible strategies are needed in many countries to place public debt on a sustainable path. Adjusting to lower commodity revenues and addressing financial vulnerabilities remain key challenges for many emerging market and developing economies. The world also needs a renewed multilateral effort to tackle a number of common challenges in an integrated global economy.
Also, just hours after Theresa May announced the UK would hold snap elections in June, the IMF hiked UK's 2017 outlook from 1.5% to 2.0%, reversing nearly all of the downgrade it forecasted after last summer’s Brexit vote. From the FT:
In its latest assessment of prospects for global growth, published on Tuesday, the IMF predicted the UK economy will expand this year by 2 per cent, a sharp increase of 0.5 percentage points from the forecast it made in January. The IMF also upgraded its UK forecast for next year, from 1.4 per cent to 1.5 per cent.
Before the EU referendum last year, the IMF predicted the UK economy would grow 2.2 per cent in 2017. But it cut the forecast to 1.3 per cent last July, weeks after the Brexit vote, and downgraded it further, to 1.1 per cent, in October.
Economic growth proved more resilient in the second half of last year than the IMF and many other forecasters had predicted, with output growing 0.5 per cent in the third quarter, and 0.7 per cent in the fourth quarter. The new IMF prediction is the same as the forecast published last month by the Office for Budget Responsibility, the UK government’s fiscal watchdog.
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However, the IMF, like many other forecasters, continues to argue that the Brexit vote will reduce Britain’s economic growth in the longer term. The IMF said on Tuesday that Britain’s “medium-term growth prospects have . . . diminished in the aftermath of the Brexit vote because of the expected increase in barriers to trade and migration”.
However, while there was clearly an optimistic bias to the latest IMF report (for a change), it is notable that the IMF once again trimmed its outlook for global trade volume, which while unchanged in 2017 at 3.8%, was revised down by 0.2% in 2018 to 3.9% as the IMF continues to see world commerce suffering. Some more:
Global trade is estimated to have grown by 2.2 percent in 2016 in volume terms, the slowest pace since 2009, and below the 2.4 growth rate of world GDP at market exchange rates. The further slowdown is attributable to developments in advanced economies, whose exports and imports slowed substantially relative to 2015. Weaker trade growth was related to an investment slowdown and inventory adjustment, especially during the first part of the year. At the same time, there are signs of recovery, as discussed earlier, which should lead to a pickup in trade growth in 2017–18, as demand and especially capital spending recover.
After declining to about ¼ percent in 2015, trade growth in emerging market and developing economies showed some signs of recovery, rising to an estimated 2.2 percent in 2016. This recovery was underpinned by stronger trade growth in China and India as well as in Russia and the Commonwealth of Independent States, where the contraction in imports moderated from the dramatic pace in 2015. Trade growth is projected to increase further in 2017–18, as a gradual recovery in investment by commodity exporters boosts import growth. As a result, global trade is projected to grow at a rate of close to 4 percent in 2017–18 (close to 1 percentage point above world growth at market exchange rates).
Full report below: