Global Economy Booming – What It Means for Investors
Global economic growth should remain strong in 2018, as both advanced and emerging economies enjoy a synchronized upturn. Find out in brief what is most important for the global economy and the implications for you as an investor.
Barring a major geopolitical crisis or the occurrence of "tail risks," we believe that global growth will remain very robust in 2018 and may even accelerate further. Existing growth drivers, especially the positive momentum of employment and wages in combination with added impulses, should more than offset any restraining factors, in particular less accommodative monetary policy, somewhat tighter credit conditions and moderately higher commodity prices.
Moreover, 2018 is likely to see an even stronger re-synchronization of the business cycle major expansion across advanced and emerging countries. This should also be reflected in a further recovery of international trade volumes.
World Trade and Investment Are Supporting the Global Economy
Employment and consumption have been the key growth drivers in recent years, while low interest rates fostered a boom in real estate investment in a number of countries. Corporate capital expenditure was fairly subdued, however.
With the overall growth outlook firming, business sentiment rising, labor markets tightening but profitability high, we expect corporate capex to become a key growth driver going forward. Tax cuts and some fiscal easing in the USA and Germany, in particular, should also fuel growth. Global trade is likely to accelerate, outweighing protectionist tendencies.
Inflation Remains Low
Structural forces that favor disinflation, such as the "gig" economy, i.e. a labor market in which workers flexibly offer temporary services, remain in place. In specific sectors such as retail, the internet is increasing price transparency and pressuring margins. Moreover, inflation expectations are generally anchored at low levels.
Finally, a number of global industries are still suffering from excess production capacity. Nevertheless, as labor markets tighten in some countries, including the USA, Germany and Japan, stronger wage growth could lead to somewhat faster price rises. An upside surprise in commodity prices is an added risk factor.
Central Banks to Reduce Liquidity
The US Federal Reserve (Fed) embarked on a program of balance sheet reduction in October 2017. The European Central Bank (ECB) and others are set to wind down asset purchases in 2018.
In late 2018, the cumulated balance sheets of the major central banks will thus begin to shrink. In the course of 2018, a number of major central banks are also likely to join the Fed in raising interest rates. In emerging markets, the phase of policy easing is nearing its end. Overall, global monetary policy will thus clearly turn less accommodative.
On the Trail of the Next Generation
What factors will drive financial markets in 2018? How will the global economy develop? You will find answers to these and other questions in the 2018 Investment Outlook from Credit Suisse. The report focuses on the generation of millennials as the driving force of the future.