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Global economy chugs forward as Laggards look to be locomotives

Global GDP is projected to increase by 3.4% in 2017 and 3.5% in 2018, according to economists

Gulf News

Washington

The world economy looks well on its way to a year of faster, firmer growth after rising at its most rapid pace in two-and-a-half 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.

“The global economy is in better shape than it has been in several years,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “We just don’t see what would be a trigger for a recession.”

He called it a “Goldilocks” scenario for stock market investors, with the economic recovery solid enough to generate higher corporate profits but not so fast as to lead to a rapid pickup in inflation and interest rates. The MSCI ACWI Index of stocks from emerging and advanced economies has risen in the past five quarters, its longest stretch of gains since the 2007-08 financial crisis.

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

“Recent data point to the broadest synchronised upswing the world economy has experienced in the last decade,” International Monetary Fund chief economist Maurice Obstfeld wrote in a recent blog post. “World trade growth has also picked up, with volumes projected to grow faster than global output in the next two years.”

The pickup 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 lacklustre growth, the Euro-area economy is starting to build momentum. The expansion accelerated to 0.6 per cent 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.

Positive outlooks

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 US and China. And there the omens are favourable.

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

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

“For the first time during this eight-year expansion there are no serious impediments to growth,” Mark Zandi, chief economist for Moody’s Analytics, wrote in his monthly economic report.

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 US from abroad have diminished as world growth has strengthened.

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