Global upturn stays on track with growth set to beat its long-run trend - NAB
The global economic upturn remains on track with global growth expected to return to its 3½% long run trend this year before accelerating to modestly above trend in 2017, which should be the best year for the global economy since 2012, explains the research team at NAB.
“Measures of financial market volatility are very low by historical standards while bond yields, credit spreads and default swap pricing are also low. Very low interest rates have led to investors taking on more risk as they search for higher yields, a strategy that could clearly run foul of the expected upward trend in central bank policy interest rates.”
“Central banks in the big advanced economies should be well aware of risks currently embedded in markets and will not want their long-engineered reflation of demand to stall. Hence the tightening in monetary policy should be gradual and modest with interest rates ending up well below their pre-GFC peaks. Governments do not appear inclined to embark on rounds of budget consolidation either, despite high debt burdens, with the emphasis in fiscal policy on lowering rather than lifting taxes.”
“With the global economic upswing looking set to continue and the authorities reluctant to take measures that could short-circuit this long awaited upturn, much of the focus of risks is now on geopolitical trends and events and what they might mean for economic policy. The outcome of last year’s Brexit referendum and President Trump’s vote-winning economic platform highlighted the importance of ensuring that the benefits of market-oriented growth models are spread through the population to avert sudden U-turns in policies. This year’s election outcomes in big Euro-zone economies have not led to similar changes but the Italian general election due in early 2017 stands as another test for markets.”