World economics in good health

When it comes to the world economy outlook, analysts seem optimistic – but they remain cautious about factors that could put a global economic recovery in jeopardy.

For Goldman Sachs Research, the planet’s current economic situation “really is about as good as it gets”, in the words of Jan Hatzius, the research arm’s chief economist, who said that the organisation is expecting 4% global growth.

Speaking about the macroeconomic global forecast for 2018, Mr Hatzius said that the growth figure likely means that the unemployment rate in practically all the economies that the organisation studies will fall. He also explained that Goldman Sachs Research has observed some improvement in productivity growth, with tentative signs that productivity is better set to be sustained in 2018. The analyst added that inflation is below central bank targets in most places around the globe.

“We have strong growth and low inflation, and while central banks and some places are moving towards the exit, so far, they’ve done that in a way that has been relatively market-friendly and really very well-digested by markets,” he said. “Over time, more challenges are likely to appear, and in particular, we are going to be probably cutting into capacity constraints to a greater degree in some places, including the US, but for now, it’s quite a friendly environment.”

Clear potential

A feeling of amiability isn’t something that one tends to associate with the world economic market, but others are similarly pleased with the current state of play in global economics. In a post from the start of December, Craig Botham, emerging market economist at multinational asset management firm Schroders, said that the company, having just updated its global economic forecast for the next two years, had upwardly revised growth for 2018 to 3.3% from 3%. This marked a small acceleration from 2017 and would be the most robust growth on record since 2011, Mr Botham said, noting that the uptick had been motivated by expectations of looser US fiscal policy and, worldwide, stronger trade. However, the analyst warned that stronger growth would also mean quicker inflation.

“In 2018 it’s likely to splice to the upside after 2017 where it came in a bit weaker than expected,” he explained. “Price pressures are going to rise as supply capacity is eroded by growth, and stronger oil prices will mean higher energy costs. Consequently, for central bank policy, we expect it will be a bit tighter next year than it has been this year. We think we’ll have three hikes coming through from the Federal Reserve in the States. We think that the European Central Bank will be ending its quantitative easing programme in September of 2018, and the Bank of Japan will be having to reduce its own QE purchases throughout the year compared to what we had expected previously.”

In his 2018 forecast, Mr Hatzius explained that several developed economies were starting to come across capacity constraints, with the US, as well as some other smaller economies, at full employment. However, the chief economist made the comparison to the emerging world, saying that here, there was more breathing space.

“Most emerging economies are below their long-term capacity to produce, and they should really be able to see pretty strong growth for an extended period before they really need to slow things down, so central banks should be pretty accommodative, and the environment should generally be quite growth-positive for the next couple of years and for that reason. We’re clearly above consensus when it comes to emerging market growth,” he said.

In its World Economic Outlook for October 2017, the International Monetary Fund (IMF) offered opinion on how emerging markets could tackle problems and guarantee more inclusive growth. It said that while there was a pickup in activity in Japan and the euro area, as well as robust growth in emerging Asia and emerging Europe, growth was still too low in Latin America, the Middle East and fuel exporters in sub-Saharan Africa. Recovery, it continued, could be thrown off course by aspects like political turmoil, protectionism and a quick tightening of world financial conditions, while threats to long-term prospects of many economies included an aging population, persistently low inflation and weak growth in productivity.

“Policymakers should use the strength of the global economy as a window of opportunity to tackle these risks and challenges and ensure that growth is more inclusive,” said the IMF. “Advanced economies can boost productivity and labour supply, invest in people and infrastructure and reduce public debt. Emerging market economies can consolidate public finances and strengthen infrastructure and institutions. Low-income countries can boost tax collection to help fund infrastructure and investment and manage debt, and capitalise on the growing youth population.” The forecast anticipated 3.7% growth in the world economy for 2018.

With positive growth predictions the order of the day for analysts, shipping may be set to feel the benefits of Mr Hatzius’ claim that the global economy “really is about as good as it gets”.