Global economy came into 2018 with momentum - Wells Fargo

Analysts from Wells Fargo, estimate that the global economy grew near its long-run average of 3.5 percent last year, and they look for roughly similar growth rates in 2018 and 2019. They forecast that real GDP growth in the United States will strengthen from 2.3 percent last year to 2.9 percent in 2018 and the Eurozone economy to decelerate marginally from the 2.5 percent growth rate it registered in 2017, its strongest growth rate in ten years, to a still respectable 2.3 percent rate of growth this year.

Key Quotes: 

“A synchronous economic upswing appears to be underway in the global economy at present. The rate of growth in global industrial production strengthened to a six-year high last year, and we estimate that global GDP grew more or less in line with its long-run average in 2017. We look for the global economy to expand at roughly similar rates in 2018 and 2019. 

“With growth picking up and the threat of deflation receding in most economies, central banks are removing policy accommodation. The Fed has hiked rates by 125 bps over the past two years, and we look for 75 bps of further tightening by the FOMC in 2018. The ECB has been dialing back its bond buying, and we look for it to end its quantitative easing program late this year before beginning a slow process of rate hikes next year. The Bank of Canada and the Bank of England hiked rates last year, and we expect that both central banks will tighten further this year. We look for the downward trend in the dollar to continue as ongoing Fed tightening starts to become less supportive of the dollar and as foreign central banks start to catch up to the Fed with their own removal of policy accommodation.”

“There clearly are a number of geopolitical events that, if they were to come to pass, could raise risk aversion among investors and businesses, thereby weakening growth prospects. Growth could also weaken if central banks become too aggressive in their removal of policy accommodation. But if these risks do not come to pass, then the global economy should continue to expand this year at a solid pace.”