World Economy

Global Growth Forecast to Reach 7-Year High

PwC forecasts global growth to reach 3.7% in purchasing power parity terms next year, the most rapid expansion, by this metric, since 2011
PwC sees GDP growth in the US picking up from 2.2% this year to 2.4%, France from 1.8% to 2%, German steady at 2.3%,  while China to slow from 6.8% to 6.5%.PwC sees GDP growth in the US picking up from 2.2% this year to 2.4%, France from 1.8% to 2%, German steady at 2.3%,  while China to slow from 6.8% to 6.5%.

The year 2018 looks to be a year of good economic growth around the globe, according to PricewaterhouseCoopers. Global growth is projected to reach 3.7% in purchasing power parity terms next year.

This will be the most rapid expansion of global growth, measured by this metric, in 7 years, the accountancy and professional services firm’s forecasted in its report Monday, news outlets reported.

Unfortunately, PwC’s forecasts are not so bright for the UK. Unemployment across the Group of Seven countries is predicted to reach its lowest level in 40 years below the 5% line. GDP growth is expected to decline from 6.8% to 6.5% in China next year. Globally, GDP is forecast to reach 3.7%. The US, France and Germany should come in at levels between 2% and 2.5% with Britain only expected to demonstrate a GDP of 1.4%.

PwC said that, for the first time since 2010, it is revising its global growth forecast upwards, bolstered by a robust cyclical recovery in the eurozone and stronger growth in the US.

“We expect global economic growth to be broadly based in 2018, rather than dependent on a few star performers,” said Barret Kupelian, senior economist at PwC.

“While the growth outlook for 2018 is positive, there are some downside risks for business to bear in mind, including the progress of the Brexit negotiations and wider discussions about the future of the EU.”

PwC said that 2018 could see the European Central Bank halt its money-printing program altogether, rather than just tapering it down, if inflation in the single currency area comes in a little stronger.

Britain's Bleak Outlook

Remaining in line with the Office for Budget Responsibility, the treasury’s official forecaster, PwC’s GDP forecast for 2018 expects the UK to demonstrate the lowest growth rate since 2009 when the economy shrunk by 4.2%, The Independent said.

PwC forecasted an economic expansion of 1.4% for Britain during the next twelve months. The UK’s GDP of 2017 is expected to come in at 1.5%, which in itself is at its lowest level since 2012. Brexit-uncertainty and inflation increases remain the biggest culprits blamed for the dim outlook on 2018.

On the bright side, the Confederation of British Industry said on Monday that UK manufacturing orders remained at its highest level since August 1988. Manufacturing only makes up about 10% of Britain’s economy but the Bank of England is confident that exports can help soften the blow of inflation and a weaker pound.

Activity has been dragged down by a spike in inflation since the June 2016 Brexit vote, induced by the record slump in sterling on the night of the referendum.

That has crimped household spending. Investment has also been frozen by many firms, attributable to uncertainty about trade relations with Europe after Brexit in March 2019.

Increase in Global Spending

Even though both the UK and China are expected to show slower growth in the next twelve months, the global economy is expected to bloom in 2018. An extra $5 trillion should be spent by consumers. Growth in the US, eurozone and Asia and countries such as Taiwan and South Korea will most likely boost global GDP figures.

“Generally, we expect monetary policy to somewhat tighten in the G7, reflecting closing output gaps in some advanced economies and stable inflation expectations,” PwC said.

The firm sees GDP growth in the US picking up from 2.2% this year to 2.4%. It sees French growth rising from 1.8% to 2%. German growth is seen steady at 2.3%, while growth in China slows from 6.8% to 6.5%.

2018 Best Year Since 2010

The Organization for Economic Cooperation and Development reported late November that the global economy in 2018 is on pace to have the best year of growth since 2010, which was the snapback year after the Great Recession.

Economists at Bank of America Merrill Lynch said: “The global economy is in the midst of a miniboom that started in mid-2016.” They expect “solid” 3.8% global growth next year, up from 3.7% this year, with most major economies growing at or above potential.

Their counterparts at Barclays are even more bullish, anticipating that the “self-enforcing economic cycle” will deliver 4% global growth next year.

The International Monetary Fund said recently that annual global growth of 4% or higher was in fact fairly common in the pre-crisis years.

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