Like many people I’ve spent a lot of time over the last week at “2018” Outlook events, reading and writing outlooks. At the risk of adding to the deluge, its worth a few reflections about the status of consensus and where triggers might diverge.
Almost everyone I've spoken to over the last few months is upbeat and sees a continuation of the “synchronized global expansion,"* benign liquidity conditions and pricey valuations getting even more pricey after gains. Some countries and sectors look less resilient, but the general view is quiet positive.
Some are a little worried about 2019 or H2 2018 or Q4 2018 when the effects of balance sheet adjustment might begin to be more priced and when questions escalated on what might be the new drivers of growth. In this context, regulatory uncertainty especially around trade and investment policy might reinforce recent investment trends, as some corporations and households hold off on spending.
2018 is likely to be a year of relatively robust global growth similar to the post-crisis peak. A needed slowdown in Chinese growth will likely offset by recovery in several other emerging markets (especially India and struggling oil producers), the U.S. and Europe continue to grow above potential and global central banks (especially Japan, Europe and China ) continue to provide significant liquidity despite a move away from aggressive liquidity provision in 2018.
Even Latin America and the Middle East and Africa, the global laggards are likely to stage a modest recovery, helped by stronger commodity prices and easier liquidity. The gradual pickup in wage pressures and unit labor costs is a sign of this expansion, particularly in countries in developed Asia and Europe, allowing for policy adjustment. 2018 will likely be a year when post-2011 expectations of potential growth are tested. The new normal is now consensus.
What are the flies in the ointment?
What could go better than I expect?
* 9 years is a long time to be waiting on recovery. I prefer to employ the term recovery for a number of struggling countries, mostly commodity producers recovering form the struggle.
Rachel's musings on macroeconomic issues, policy and more.