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Economic Overview
Global Macroeconomic View

Momentum in the global economy appeared to lift during the second half of 2016. Although global growth remains below its long-run average pace, recent monthly manufacturing survey (PMI) data suggests that improved conditions in China’s economy helped foster a sequential pickup in growth at the global level. The world’s major advanced economies remain on the recovery path, paved by accommodative monetary policy settings. The current picture suggests the world economy is set to begin in 2017, on relatively firm footing.

The IMF has forecast global output will expand 3.4% in 2017. This is unchanged from its previous forecast published in July. Assuming the IMF forecast for 2017 global growth is realised, this would represent an acceleration of 0.3%pts from 3.1% in 2016.

Short Term

AME expects the global economy to expand 3.1% in 2016. High-frequency activity indicators have pointed to an encouraging, albeit modest, upswing in global industrial production in recent months. This apparent increase in momentum comes after a sluggish first half of 2016, when growth in the world economy slowed slightly relative to the latter half of 2015. Evidence of strengthening in global industrial outcomes suggests the near-term outlook for international trade has also brightened, notwithstanding risks posed by persistent headwinds.

  • Across the world’s advanced economies, the US is arguably leading the recovery among advanced economies following the financial crises and associated economic downturns of the past decade. The state of the US economy was a central topic of the recent US Presidential race, which saw Donald Trump become US President-elect. While the result has provided markets with an element of clarity, the result has generated uncertainty about the likely impact of the political transition on the US economy. While the election campaign provided a reminder that pockets of its economy remain subdued, in aggregate terms the US labour market continues to improve. Since the election, financial markets have largely priced-in an increase in the US Federal Funds rate at the FOMC’s December policy meeting. This expectation has been shaped in part by a perception that President-elect Trump may approve fiscal stimulus, which will see spare capacity in the US economy continue to decline, spurring an increase in inflationary expectations.

G20 Countries – Real GDP Growth Estimates, 2016Q3

Source: AME, IMF, country statistical offices

  • In the United Kingdom, while the June 2016 referendum vote to exit the European Union negatively impacted sentiment toward the UK economy, measures of activity suggest there has been relatively little immediate impact on output. Looking ahead, we expect ongoing uncertainty about prospects post-Brexit to remain a headwind to growth in the UK economy.
  • In early November, India’s authorities took the surprise step of declaring the nation’s two highest denomination banknotes to be legally worthless with near-immediate effect, affecting 86% of currency in circulation. This move was aimed at curbing activity outside its formal financial system, colloquially termed the “black economy” in India. While this unconventional reform measure may yield positive outcomes long term, the move is expected to dampen overall activity in the December Quarter of 2016, amid reports of businesses coming to a halt due to a lack of cash.

Countries that have recently released September Quarter GDP figures include Japan, Germany, Norway and Brazil.

  • Japan’s economic growth in the September Quarter of 2016 was much higher than expected, at 2.2 percent year on year, up from 0.7 percent growth in the June Quarter. Seasonally adjusted quarter-on-quarter growth reached 0.5 percent, up from 0.2 percent in the June Quarter. Expectations were for a 0.8 percent year-on-year jump and steady quarter on quarter. Almost all the growth can be attributed to trade, exports were up and imports down, accounting for 1.8 percent of the total growth. Government spending contributed 0.4 percent growth, consumption added only 0.1 percent growth, while business investment was flat.
  • Germany’s economic growth continued its slowdown in 2016, rising 0.2 percent, quarter on quarter, in the September Quarter of 2016, down from 0.4 and 0.7 percent growth in the June and March quarters, respectively. Year-on-year growth in the September Quarter was 1.7 percent, down from 3.1% in the June Quarter. Growth was pushed lower by declining foreign trade, with exports falling 0.4 percent, quarter on quarter, while imports grew 0.2 percent. Germany’s services sector, which makes up almost 70 percent of the economy, is recording strong growth in the December Quarter, with the November IHS Markit’s PMI reaching a six-month high of 55, up from 54.2 in October. This is pointing towards increased GDP growth in the December Quarter.

Top Five Economies Quarterly GDP Growth Forecasts, 2015–2017

Source: AME, IMF, country statistical offices

  • Norway’s economy shrank in the September Quarter of 2016, with low oil prices the primary cause for the contraction. Seasonally adjusted GDP fell 0.5 percent quarter on quarter, following a 0.0 percent change in the June Quarter. The economy contract 0.9 percent in the September Quarter year on year, after 2.5 percent growth in the June Quarter. It was the first year-on-year contraction since the June Quarter of 2014. Petroleum and ocean transport output fell 3.1 percent in the September Quarter, steeper than the 1.8 percent contraction in the June Quarter.
  • Brazil’s economy contracted for the seventh consecutive quarter in the September Quarter of 2016. GDP fell 2.9 percent in the September Quarter year on year and 0.8 percent quarter on quarter, in line with expectations. The quarterly drop, the largest this year, was driven by a 3.1 percent quarter-on-quarter decline in investment, after a small rise in the June Quarter, dashing hopes that the economy was actively exiting the worst recession in the country’s history. Exports fell 2.8 percent and imports were down 3.1 percent quarter on quarter. Economic growth is still expected to return in 2017, with growth of 0.5% forecast for 2017.

G20 Quarterly GDP Growth Forecasts, 2015–2017

Source: AME, IMF, country statistical offices

Medium Term

Over the medium term (2018–2020), global GDP growth is expected to reach 3.8% in 2020 and average 3.7% over the period.

  • The global economic recovery forecast in the short term is expected to continue in the following few years. Medium-term growth is comparable to the average annual rate of 3.8% over the last 15 years (2001–2015), but slightly higher than the 3.7% in the last ten years (2006–2015) and 3.5% in the past five years (2011–2015).
  • Stronger growth over the medium term will mainly be driven by a continued pick-up in emerging market economies, in particular a recovery in those that have experienced especially severe downturns in recent years. We expect a return to positive year-on-year GDP growth for Russia in the March Quarter of 2017, and (in all likelihood) for Brazil a quarter later. Growth in developed economies will be supported by remaining—albeit narrowing—output gaps. While gradually tightening, monetary policy is also expected to remain accommodative in advanced economies over the medium term.

Estimated and Forecast Global GDP Growth, 2000–2030

Source: AME, IMF

  • China is expected to continue to post solid growth rates of around 6% in the medium term. Nevertheless, there are risks to the underlying assumption that the country will manage a smooth transition to a new growth model.

Long Term

In the long term, global GDP growth is forecast to ease to 3.5% by 2025 and 3.3% by 2030.

  • This compares to 3.7–3.8% average annual growth over both the medium term and over the past 15 years.

G20 Estimated and Forecast GDP Growth, 2010–2030

Source: AME, IMF

  • This is on the assumption that output gaps in the advanced economies will have closed. In addition, demographic factors will be less favourable, with ageing populations in advanced economies slowing growth in the labour force. While remaining much higher, growth in emerging markets is also expected to gradually ease, driven by the maturing of China’s economy as it continues to move towards domestic consumption away from investment and exports.
  • Slower growth rates in China will also limit growth potential in other emerging markets. However, India, which is less dependent on external trade, is forecast to continue to post growth rates way above the average, supported by favourable demographics.
  • The outlook for productivity growth in key economies is uncertain. Weak productivity growth was already an issue in a number of advanced economies before the global financial crisis, and has since persisted.

End Use Sectors 2009–2016Q2

Source: AME

Industrial Indicator Summary 2009–2016Q2

Industrial Indicator Summary 2009–2016Q2

Source: AME