By Mike Eggleton, Senior Manager, Analytics & Research, BCD Travel
The global economy expanded by 3.0% in 2017 (Figure 1). We haven’t seen it grow this fast since 2010 and 2011, when it was on the rebound from 2009’s global economic downturn. But 2017’s performance marks a high-point in the slow and steady recovery that’s been under way since 2012.
Oxford Economics expects even stronger growth this year, peaking at 3.2%.
It’s possible to point to a number of reasons why economic growth has been so strong recently:
- China’s economy did better than everyone thought it would. Its stronger demand for imports proved to be great news for global trade in 2017.
- The Eurozone economy was also stronger than expected. And the negative effects, that we thought political populism and the U.K.’s exit from the European Union would have, largely failed to materialize.
- The worst fears about the policies of the Trump Administration in the U.S. have proved to be unfounded thus far.
- Low inflation has helped delay interest rate rises in advanced economies.
- Rising raw material prices have benefited the economies of commodity exporting countries.
- A weaker U.S. dollar typically means stronger global economic growth; and 2017 was no exception.
How sound is the recovery?
China was key in defining the global economy’s performance in 2017, as its growth was stronger than expected. But its economy should resume its gentle downward trend in 2018 (Figure 2). The Chinese government has shifted its focus away from encouraging rapid economic growth to managing debt, and it will steadily increase interest rates to reduce it. Economic growth in the future will depend less on investment and more on consumers. It will slow to 6.4% in 2018, slipping to 5.2% by 2022.
The Eurozone recovery is holding up: Having grown by 2.5% in 2017, the economy will expand by a further 2.3% in 2018 (Figure 2). As the labor market gradually improves, household spending is picking up. This should reduce the risks of the Eurozone economy overheating. Balanced growth is good, and more enduring.
Sentiment and the labor market are both positive in the U.S. But a dip in household savings represents a real risk to consumer spending. Households will need stronger real income growth, if they are to rebuild their savings and continue spending. A fiscal stimulus program of tax cuts from the Trump administration could provide a real boost to economic growth.