The world economy is buoyant and the upturn is strengthening
The eurozone, too, has shaken off years of crisis and is now basking in economic recovery. Progress in the emerging markets is mixed. The pace of recovery in Latin America remains subdued, while Asia is powering ahead.
Important leading indicators for the US point to higher growth of personal consumption and investment in 2018. If that happens, GDP could rise by 2.6%. There is uncertainty on the inflation side, however. Inflation has recently been lagging expectations. Given the record-low unemployment rate, one could now expect to see a pick-up in wage growth and faster inflation. Indeed, there are now signs that wages are on a somewhat faster growth track. At the latest reading, however, core inflation was still below the Fed’s 2% target.
Business sentiment in the eurozone could hardly be better. Companies seem to be unfazed by the approach of Brexit or the protectionist policies of Donald Trump. The driving force is the ultra-expansionary monetary policy of the European Central Bank. The eurozone economy has been growing at an average quarterly rate of 0.6% since the autumn of 2016, and the upswing shows no sign of petering out. The growth gap among individual eurozone countries has narrowed significantly. Even the Italian economy has chalked up a quarterly growth rate of 0.4%.
The Swiss economy should gather momentum this year. Conditions now look right for a higher growth rate. Above all, the economic recovery in the neighbouring eurozone should benefit Swiss exports. But the performance of Switzerland’s immediate neighbours is not the only plus factor. The general recovery of the global economy will also support stronger export growth.
The economic picture in the emerging markets is mixed, though more countries in this category are now achieving positive growth than in previous years. The Chinese economy has shown no signs of weakness so far this year. In Latin America, Brazil and Argentina are on a recovery track, albeit at a low level. The stabilisation of crude oil prices has contributed to the recovery now being experienced in many commodity-exporting countries, notably Russia.
The Chinese government has so far succeeded in ensuring that the shift towards slower growth proceeds in a gradual fashion, with consumer spending making an increased growth contribution relative to capital expenditure. Thus the transformation of China to a more consumption-oriented economy making further headway.