2017: Europe sees revival in growth, despite Brexit uncertainty
January 2018
The global economic picture was quite positive in 2017 as activity strengthened in the latter stages of the year. In October, the IMF revised up its global GDP growth forecast for 2017 to 3.6%, with 3.7% for 2018. There was better-than-expected growth in the Eurozone, emerging Asia and emerging Europe. Despite the positive outlook, growth in the United States and United Kingdom was revised downward and inflation is falling below target in most advanced economies.

China’s economy expanded 6.9% year-on-year for the March and June Quarters and by 6.8% in the September Quarter, beating market expectations. Despite this, economic signals from government policies designed to rein in infrastructure over-spending and to cool the property market, became more apparent in the second half of 2017. Fixed-asset investment levels began to slow in the June Quarter, decelerating through the year. November saw the weakest rise in fixed-asset investment since 1999. Construction activity and house price growth slowed. The 19th National Congress of the Communist Party was held in October, as President Xi Jinping laid out the next five-year plan for China. This plan has a focus on lowering the country’s debt and aims to improve the environment. The plan will move China from national growth targets towards more sustainable development.

As 2017 opened, the Eurozone was still in shock from the Brexit vote of 2016. Despite this, a revival in global growth, improved domestic demand and capital spending pushed up economic strength and drove down unemployment levels. in the second half export demand accelerate, driving up industrial and manufacturing activity. This further boosted employment with the December Quarter reporting job creation at a pace not seen for 17 years. Despite the strengthening Euro, export levels continued to rise. The expanding labour market improved household incomes which further strengthened domestic demand. Political uncertainty began to fade as governments focused on demand and setting up the year ahead. The UK economy suffered amid Brexit uncertainty which will continue through to October 2018, when negotiation talks are scheduled to wrap up.

Economic conditions in the US improved in 2017 despite uncertainty over President Trump’s pledge to overhaul taxes, trade, infrastructure and health care. Industrial and manufacturing activity was strong in 2017, but Hurricanes Harvey and Irma caused disruptions. Rebuilding efforts pushed up results in the September Quarter which was also helped by an improving labour market and low inflation. In September, President Trump announced his sweeping tax reforms and global leaders have voiced fears the cuts will have an adverse effect on other economies.

India’s economy is set to recover from the transitory adverse impact of introducing a nation-wide Goods and Services Tax (GST), demonetisation measures and a poor performance in the first quarter of the Indian financial year. Despite seasonal effects dragging on results in October, November posted strong gains, namely in auto and manufacturing. Growth is expected to accelerate further as fine-tuning measures on GST compliance, a large recapitalisation plan for public banks and easing uncertainty will boost India’s economy in 2018.