Momentum behind the world economy remains strong despite continued political and policy uncertainties, according to new analysis released today at the World Economic Forum in Davos by IHS Markit.
In a welcome change from the past few years, global growth is strong and is expected to increase at a rate of 3,3% in 2018 and 3,2% in 2019; at or above the 2017 rate of 3,2%, and up from the 2,5% rate in 2016, the IHS Markit analysis says.
“Until recently, the lackluster global recovery was narrowly based on solid, if unexciting, growth in just a few economies — the US, UK and Germany,” says Nariman Behravesh, chief economist at IHS Markit. “However, in 2017, the global economy recorded its best growth since 2011 supported by broader foundations, including a turnaround in the economic prospects of the Eurozone, Japan and large emerging markets such as Brazil and Russia.”
In 2017, scenarios of pro-growth populism and protectionist populism were given roughly equal weight. Now, while the risks of protectionism remain uncomfortably high, there is growing confidence in the pro-growth policies of key economies, including the United States and France. In fact, sustained and strong economic growth may weaken the allure of populism.
“The mood in Davos this year will be one of greater and more broad-based optimism than in previous years,” Behravesh says. “Since global expansion is now stronger and more synchronized, derailing it would require a large shock. The list of such shocks is long, but the probability of any one of them doing serious damage in 2018 is low.”
The potential risks the analysis highlights include:
* Financial: a sharper-than-expected rise in interest rates by global central banks, leading to damage in confidence;
* Policy: trade friction between the U.S. and its trading partners; or mismanaged deleveraging in China; and
* Geopolitical: the perennial low-probability/high-impact risk of a war in the Middle East or on the Korean peninsula.
Left to its own devices, however, world economic expansion could well continue into 2019.