Global Growth is Picking Up
The world real GDP growth is forecasted by PIMCO analysts’ to range between 3% to 3.5% in 2018. Since the Great Recession in the USA and the European debt crisis, the current environment of synchronized, above-trend global economic growth and low but gradually rising inflation is expected to carry on in 2018.
Factories and PMI’s are used as leading indicators for the world economy and are utilized by big financial firms and funds for predicting the health of the economy in the longer term. Across the globe, factories got off to a strong start for 2018, with manufacturing activity in most countries gaining momentum and hitting multi-year highs.
Business surveys from Europe and Asia showed solid activity and output, reinforcing expectations for another year of synchronized global expansion that has forced many world stock markets to flirt with record highs. The 19-country bloc’s booming manufacturing industry raced into 2018 with one of the fastest monthly paces in over 20 years in January.
The euro zone economy was a worldwide surprise last year, and any signs that zip, alongside expected inflation growth, will be welcomed by the European Central Bank as it moves to unwind its super-loose monetary policy.
The strongest manufacturing readings in Asia came from tech exporters, which continue to ride a robust semiconductor cycle driven by upgrades in smartphones, industrial robots, cars, and more recently demand for computing machines used to mine cryptocurrencies like bitcoin. Meanwhile, China keeps suppressing domestic economic and financial volatility while fundamentals in many other emerging market (EM) economies continue to improve.
As previewed above, in an environment in which the macro climate is about as good as it is going to get and where valuations are tight, it is highly anticipated by major Central Banks to hike their interest rates in order to control inflation and protect their economies from overheating.
Bank of Canada was the first major central bank to hike interest rates in 2018. The Federal Reserve in the US has forecast three rate increases for this year after lifting borrowing costs three times in 2017. For the first time in ten years, Bank of England raised the rates and chances grow for another hike in May, even before the final divorce with the EU.