Is the world economy’s current, long-running upturn running out of steam? Jittery financial markets that have struggled to regain a firm footing since February’s sell-off, anxieties over the US-China trade tariffs confrontation, and now a spate of weaker data for some major economies have all sparked concern over whether the global economy’s expansion may be stuttering or at risk.
Companies’ spirits boosted by buoyant world trade and US fiscal stimulus measures as fears over North Korea tensions and China slowdown retreat
Businesses are increasingly positive about prospects for the world economy, with optimism over the global outlook at its strongest for two years, according to Oxford Economics’ latest survey of global risk perceptions among clients and business contacts, including some of the world’s largest companies.
In our latest forecasts, we see world GDP growth accelerating from 2.9% this year to 3.2% in 2018. This would mark the best year for the world economy since the rebound from the global financial crisis began.
It is plausible that recent low volatility is the new and persistent norm, with economic surprises muted and downside risks in decline.
As a tempestuous year in world politics comes to an unnerving close, in economics the nervousness flows from an almost entirely and strangely opposite cause. 2017 ends as the year of the risk conundrum.
Even as the advent of the Trump Administration, the UK’s great Brexit gamble, and the rise of populism and separatist tendencies in parts of Europe have raised the global political stakes, in the global economy both macro and market volatility have recently plummeted. Conditions, in fact, appear more stable than during the period of the Nineties and early 2000s, which itself became known as the ‘Great Stability.
Economy would be 2% smaller than otherwise expected by end of 2020 - equivalent to a £16bn hit to GDP
With Theresa May’s UK Government struggling to make progress in ‘Brexit’ negotiations with the EU and strike a deal for Britain to leave the bloc, Oxford Economics analysed the potential impact of the talks collapsing with no agreement.
Businesses remain fearful over risks of major economic upsets that could trigger a global slowdown - despite the present upswing in world growth, according to our latest quarterly survey of global corporate risk perceptions. Business fears over tensions between the US and North Korean and over potential US policy errors emanating from the Trump Administration have persisted since the summer, even as world growth has strengthened.
Equity earnings cycles to power ahead – especially in underperforming Europe and EM markets
The world economy is evidently in the midst of what many are calling a synchronised upswing in growth. A strong rebound in manufacturing, led by Europe, appears to be at the heart of the resurgence. And the pace of expansion has accelerated in recent months. This environment is fundamentally conducive to outperformance by assets leveraged to global growth.
Investors have now been uneasy for many months that in some key global equity markets, shares are becoming overvalued, with share prices relative to corporate earnings – P/E ratios ¬– stretched, especially in the United States.
But our analysis concludes that equity earnings cycles, especially in underperforming markets in Europe and emerging markets (EM), should continue to power ahead for some time.
Ten years on from the global financial crisis, and eyes are peeled for triggers for a new world economic upheaval. And chief among the prime suspects is debt, and especially household debt.
Last month, the International Monetary Fund highlighted the danger from big increases in both the level of household debt and the pace at which it is rising in many key economies. “Higher household debt is associated with a greater probability of a banking crisis, especially when debt is already high, and with greater risk of declines in bank equity prices,” the Fund warned in its influential Global Financial Stability Report.
Building on the IMF’s analysis, Oxford Economics has put the debt bogeyman under the spotlight.
We investigated just how great the risks really are, and just where they may lie, country by country, creating a global risk map to identify the debt danger zones to the world economy. This goes beyond the Fund’s study which while looking at 80 economies and across 25 years of data stopped short of naming the countries where the risks loom largest.
What will the highways of the world look like in five or 10 years’ time and what will this mean for the future of the automotive industry, not to mention the thousands of businesses in multiple industry sectors that supply them? For many, the hubbub in the media and among industry observers over electric vehicles drives an image in our imaginations of a world humming quietly to the sound of electric cars whizzing us happily to our destinations. It is a vision of more efficient journeys, clean air and a quieter environment.
Recent years have seen startling growth in the reach of mobile technology. Such growth has been truly ‘global’ with vast investment in mobile infrastructure, supporting increased network coverage across emerging markets in all six continents. The impact of this extends far beyond convenience and consumer choice. Mobile internet technologies are transforming product and labour markets the world over. They are helping to propel ideas, connect businesses and customers and match workers to opportunities.
We are pleased to announce our new Exchange Rate Service. The Exchange Rate Service provides access to five-year forecasts of annual exchange rates for 150 economies against the United States dollar, and quarterly forecasts for the world’s largest 33 currencies against the dollar, the euro, the Japanese yen, and the British pound.
Clients receive a written report each quarter describing main drivers of change and the outlook under our baseline forecast and each of our five-year scenarios. In addition, we supply an Excel file that shows both the quarterly and annual results, updated once a month.
February 2017: A recovery in trade
Each month Oxford Economics’ team of 160 economists updates its baseline forecast for 200 countries using the Global Economic Model, the only fully integrated economic forecasting framework of its kind. Below is a summary of our analysis on the latest economic developments, and headline forecasts.
Top ten calls for 2017 — Trumpenomics leads the way
Our top ten calls for 2017 are, not surprisingly, dominated by the impact of Donald Trump’s surprise election victory in November. The full effect of reflationary policies under the new Trump administration is unlikely to be seen in the real economy until 2018 with world GDP growth and trade growth remaining moderate next year. Nevertheless, we do expect US growth to firm in 2017 and US financial market developments – to some extent anticipating the likely fiscal policy and growth effects of Trump’s policies – will have a major impact on the global economic landscape.
The global economic outlook has shifted markedly in the three months since our last report. While our baseline forecast has changed only modestly, upside risks to growth have increased significantly and we no longer judge risks to be skewed to the downside. As highlighted in the latest Oxford Economics Global Risk Survey, the greatest source of risk is the US policy stance once President-elect Trump takes office.
Breaking new ground in macro research, Oxford Economics has captured current and historical statistics on bilateral trade in services for 24 key trading nations to build a unique, comprehensive database. These previously elusive data give us unprecedented insight into the evolution of services trade.