A good year for the world economy as growth rises above trend - NAB

The world economic upturn continues to gather momentum as global output growth has accelerated from around 3% yoy in mid-2016 to 3¼% yoy last December quarter, 3½% yoy in the first half of 2017 and 3¾% yoy in September, notes the research team at NAB. 

Key Quotes

“Consequently, global growth is now running above its 3½% long-term trend for the first time since mid2005.”  

“Behind the volatility in the monthly data on industrial output, world trade and new orders is a solid performance. Inflows of new orders are generally a good leading indicator of output and these have been rising solidly across a range of advanced and emerging market economies.  Global industrial production continues to grow solidly with growth running around 3¾% yoy in the latter half of the year, its strongest run since early 2014.  World trade has also been picking up in 2017, after a long flat period through 2015 and 2016 with a sizeable lift in the pace of growth in the third quarter.”

“One of the best aspects of the global economy through this year has been the way the upturn has become more securely established – broadening out geographically to include formerly soft economies and deepening with an acceleration in the pace of growth in fixed investment in the big advanced economies. As the upturn in demand gradually erodes surplus capacity across the G7 advanced economies, it is increasingly important that investment grows solidly to facilitate a long and sustainable period of economic growth – and that is now starting to happen with a ramping up in capital spending through the last year.”

“While advanced economy growth has accelerated from 1¼% yoy in mid-2016 to 2¼% yoy in September 2017, it is the emerging market economies that provide the bulk of increased global output. That should continue as growth is lifting in a group of big emerging market economies (Russia, Brazil and India) whose output performance has been sub-par for much of 2017. As collectively they account for 13% of global output, movement out of recession in Brazil and Russia combined with an end to the hit to Indian growth from de-monetisation and the new GST will offset slower Chinese growth.  As a result, the emerging economies should keep growing by over 5% yoy.”