The global economy is projected to post its best performance this year since 2014. While geopolitical risks abound, recent economic data point to strengthening growth prospects in most areas of the world. From an economic perspective, the risks could be characterized as unbalanced toward the positive for the first time in many years, given the momentum already underpinning global growth.
Geopolitical risks are substantial. “The incoming Trump Administration’s approach to trade policy, which has not yet been fully articulated, represents a significant risk to the global recovery,” said Jean-François Perrault, Senior Vice President and Chief Economist at Scotiabank. “While it may appear that we are entering a stronger, more sustained phase of the global recovery, it is too early to put on our sunglasses.”
Highlights of Scotiabank’s Global Outlook include:
— Canada: Growth is expected to accelerate over the next two years owing
to firmer domestic activity, expanding fiscal stimulus and increasing
foreign demand. Housing and auto sales are expected to provide a mild
drag on growth.
— United States: U.S. growth is expected to accelerate to 2.3% in 2017
and 2.4% in 2018, driven by robust labour markets, more confident
consumers and a pick-up in business investment.
— Latin America: 2017 will see generally stronger growth, though capital
flow volatility will remain a challenge.
— Capital Markets: Scotiabank Economics forecasts the U.S. Treasury and
Government of Canada yield curves to flatten over the forecast horizon.
The Fed is likely to hike rates three times in 2017 and twice more in
2018, while the Bank of Canada is not expected to raise rates until mid-
— Currency: US Dollar strength is expected to persist well into 2017.
While it remains too early to know exactly what the incoming Trump
administration intends to do – and when it will be able to practically
implement policies – the expectation is that the administration’s
initiatives may provide additional support to the USD.
— United Kingdom: The U.K. economy continues to expand at a trend pace,
but is likely to slow progressively throughout 2017.
— Europe: Eurozone growth is re-accelerating and stronger-than-expected
external demand could create an upside surprise. Inflation will
temporarily move closer to 2.0% y/y in Q1, while core inflation is
forecast to gradually rise.
— Asia: China’s economic transition continues, with output growth
expected to be close to 6.5% in 2017. India will be the fastest growing
major economy, with anticipated growth of 7.5% in 2017. Japanese growth
will remain low, at 0.7%.