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Quarterly Economic Outlook - April 2017

Chief Economist

Economic confidence indicators continue to point to a solid cyclical growth momentum across sectors and regions. While financial market volatility is very low, economic policy uncertainty remains at high levels.

  • Economic confidence indicators continue to point to a solid cyclical growth momentum across sectors and regions. The global economy is not firing on all cylinders but following numerous false starts in recent years, the current recovery looks somewhat stronger, more broad-based and more sustainable. That said, the significant difference between (soft) confidence indicators and (hard) measures of economic activity are questioning this to some extent.
  • While financial market volatility is very low, economic policy uncertainty remains at high levels. Risks to the current more positive growth momentum are significant in all too many ways including Trump not being able to live up to his promises, China’s unsustainable credit boom or more Eurozone political instability. What’s more, recent political outcomes suggest the world economy could see an unwelcome shift towards more protectionism. Encouragingly, however, Trump has stopped labelling China as a currency manipulator (for now at least) and there is much less talk about overhauling the NAFTA-agreement. Heightened political tensions in the Middle East and in the Korean peninsula, on the other hand, warrant caution.
  • Base effects linked to commodity prices continue to support inflation but have now started to fade. This means headline inflation is heading lower again. Underlying inflation remains modest and below target in most developed markets for the time being. This implies that monetary conditions will stay loose for now even though the Fed is eying a gradual tightening of monetary policy.  
  • The structural economic outlook is still clouded against the back of demographic headwinds, slower productivity growth, the debt overhang, geopolitical concerns and the difficult economic rebalancing process in China.

For a more detailed macroeconomic overview please click here.

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