Quarterly Economic Outlook – July 2017
Following many years of weak activity, the world economy is now advancing at a solid pace. Confidence among firms and households suggests this should continue in the second half of the year. And despite earlier fears about protectionism, global trade growth has seen clear signs of acceleration in recent months.
- Policy uncertainty, on the other hand, is still high by past standards. As a result, there’s still a big difference with the low levels of volatility witnessed in financial markets. How this will play out from here is subject to a great deal of uncertainty as central banks are moving towards the end of unconventional monetary stimulus.
- The Fed has already increased interest rates four times and will start to wind down the size of its balance sheet later this year whereas the ECB has been paving the way for tapering its QE efforts from 2018 onwards.
- Central bankers will try everything they can to smoothen the process. Given the still subdued levels of wage growth and inflation, high debt levels and stretched valuations in some parts of the market, there are good reasons to think they will proceed only gradually.
- Meanwhile, China continues to be a top risk for the world economy.
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